Monetary Policy at Work: Security and Credit Application Registers Evidence

64 Pages Posted: 26 Apr 2017 Last revised: 30 Aug 2018

See all articles by Jose-Luis Peydro

Jose-Luis Peydro

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Andrea Polo

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Enrico Sette

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: October 13, 2017

Abstract

Monetary policy transmission may be impaired if banks rebalance their portfolios towards securities to pursue e.g. risk-shifting or liquidity hoarding. We identify the bank lending and risk-taking channels by exploiting – Italian’s unique – credit and security registers. In crisis times, with softer ECB’s monetary policy conditions, less capitalized banks increase securities over credit supply, with associated firm-level real effects. However, less capitalized banks buy securities with lower yield (haircuts), even within securities with identical regulatory risk weights, thus reaching-for-safety/liquidity. Results are only present in marked-to-market portfolios. The evidence suggests that liquidity and risk-bearing capacity – rather than risk-shifting or regulatory arbitrage – are key drivers of banks’ behavior. Differently, in pre-crisis times, securities do not crowd-out loan application granting by less capitalized banks.

Keywords: monetary policy, Euro Area Sovereign Debt crisis, Lehman crisis, securities, credit, bank capital, reach-for-yield, held to maturity, available for sale, trading book, haircuts

JEL Classification: E51, E52, E58, G01, G21

Suggested Citation

Peydro, Jose-Luis and Polo, Andrea and Sette, Enrico, Monetary Policy at Work: Security and Credit Application Registers Evidence (October 13, 2017). Available at SSRN: https://ssrn.com/abstract=2958917 or http://dx.doi.org/10.2139/ssrn.2958917

Jose-Luis Peydro

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=432

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Andrea Polo (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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