Monetary Policy at Work: Security and Credit Application Registers Evidence
78 Pages Posted: 26 Apr 2017 Last revised: 10 Sep 2020
Date Written: October 13, 2017
Monetary policy transmission may be impaired if banks rebalance their portfolios towards securities. We identify the bank lending and risk-taking channels of monetary policy by exploiting – Italian’s unique – credit and security registers. In crisis times, with higher ECB liquidity, less capitalized banks react by increasing securities over credit supply, inducing worse firm-level real effects. However, they buy securities with lower yields and haircuts. Differently, in pre-crisis time, securities do not crowd-out credit supply. The substitution from lending to securities in crisis times helps less capitalized banks to repair their balance-sheets and then restart credit supply with a one year-lag.
Keywords: securities, credit supply, bank capital, monetary policy, reach-for-yield
JEL Classification: E51, E52, E58, G01, G21
Suggested Citation: Suggested Citation