Monetary Policy at Work: Security and Credit Application Registers Evidence
47 Pages Posted: 26 Apr 2017 Last revised: 17 Oct 2017
Date Written: October 13, 2017
The transmission of monetary policy may be impaired if banks rebalance their portfolios towards securities, e.g. to pursue risk-shifting or liquidity hoarding. We therefore identify the bank lending and risk-taking channels by exploiting – Italian’s unique – credit and security registers. In crisis times, with softer monetary policy, less capitalized banks increase securities over credit supply, with associated firm-level real effects. However, more (not less) capitalized banks reach-for-(higher)-yield. Results suggest that access to liquidity and risk-bearing capacity – rather than risk-shifting or regulatory arbitrage – are the key drivers. Finally, in pre-crisis times, less capitalized banks do not expand securities over loan application granting.
Keywords: monetary policy, Euro Area Sovereign Debt crisis, securities, loan applications, bank capital, reach-for-yield, held to maturity, available for sale, trading book, haircuts
JEL Classification: E51, E52, E58, G01, G21
Suggested Citation: Suggested Citation