Inside Asset Purchase Programs: The Effects of Unconventional Policy on Banking Competition

66 Pages Posted: 13 Feb 2017

See all articles by Michael Koetter

Michael Koetter

Halle Institute for Economic Research

Natalia Podlich

Deutsche Bundesbank

Michael Wedow

European Central Bank (ECB) - Directorate Financial Stability and Supervision

Date Written: February 10, 2017

Abstract

We test if unconventional monetary policy instruments influence the competitive conduct of banks. Between q2:2010 and q1:2012, the ECB absorbed €218 billion worth of government securities from five EMU countries under the Securities Markets Programme (SMP). Using detailed security holdings data at the bank level, we show that banks exposed to this unexpected (loose) policy shock mildly gained local loan and deposit market shares. Shifts in market shares are driven by banks that increased SMP security holdings during the lifetime of the program and that hold the largest relative SMP portfolio shares. Holding other securities from periphery countries that were not part of the SMP amplifies the positive market share responses. Monopolistic rents approximated by Lerner indices are lower for SMP banks, suggesting a role of the SMP to re-distribute market power differentially, but not necessarily banking profits.

Keywords: Security Markets Program, Unconventional Monetary Policy, Competition

JEL Classification: C30, C78, G21, G28, L51

Suggested Citation

Koetter, Michael and Podlich, Natalia and Wedow, Michael, Inside Asset Purchase Programs: The Effects of Unconventional Policy on Banking Competition (February 10, 2017). ECB Working Paper No. 2017. Available at SSRN: https://ssrn.com/abstract=2916187

Michael Koetter (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

Natalia Podlich

Deutsche Bundesbank ( email )

PO Box 10 06 02
D60006 Frankfurt
Germany

Michael Wedow

European Central Bank (ECB) - Directorate Financial Stability and Supervision ( email )

Frankfurt a.M.
Germany

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