51 Pages Posted: 11 May 2017
Date Written: May 10, 2017
Using confidential loan officer survey data on lending standards and internal risk ratings on loans, we document an effect of large-scale asset purchase programs (LSAPs) on lending standards and risk-taking. We exploit cross-sectional variation in banks’ holdings of mortgage-backed securities to show that the first and third round of quantitative easing (QE1 and QE3) significantly lowered lending standards and increased loan risk characteristics. The magnitude of the effects is about the same in QE1 and QE3, and is comparable to the effect of a one percentage point decrease in the Fed funds target rate during times of conventional monetary policy.
Keywords: QE, Banks, Risk, SLOOS, STBL
JEL Classification: E43, E52, G21
Suggested Citation: Suggested Citation
Kurtzman, Robert J. and Luck, Stephan and Zimmermann, Tom, Did QE Lead to Lax Bank Lending Standards? Evidence from the Federal Reserve's LSAPs (May 10, 2017). Available at SSRN: https://ssrn.com/abstract=2966362 or http://dx.doi.org/10.2139/ssrn.2966362