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Central bank funding and credit risk-taking

Peter Bednarek (), Valeriya Dinger, Daniel te Kaat () and Natalja von Westernhagen

No 36/2020, Discussion Papers from Deutsche Bundesbank

Abstract: This paper examines the relationship between central bank funding and credit risk-taking. Employing comprehensive bank-firm-level data from the German credit registry during 2009:Q1-2014:Q4, we find that borrowing from the central bank is associated with rebalancing of bank portfolios towards ex-ante riskier firms. We further establish that this relationship is associated with the ECB's maturity extensions and that the risk-taking sensitivity of banks borrowing from the ECB is independent of idiosyncratic bank characteristics. Finally, we highlight that these shifts in bank lending might lead to an ex-post deterioration of bank balance sheets, but increase firm-level investment and employment.

Keywords: Monetary Policy; LTRO; Bank Lending; Credit Risk-Taking; Real Effects; TFP Growth (search for similar items in EconPapers)
JEL-codes: E44 E52 G21 O40 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-eec, nep-ifn, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:362020

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