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Cutting Out the Middleman – The ECB as Corporate Bond Investor

59 Pages Posted: 19 Jun 2017 Last revised: 1 Dec 2017

Benjamin Grosse-Rueschkamp

ESMT European School of Management and Technology

Sascha Steffen

Frankfurt School of Finance & Management

Daniel Streitz

Copenhagen Business School

Date Written: November 30, 2017

Abstract

We propose a novel mechanism how central bank interventions can affect the real economy: direct corporate debt purchases by a central bank can increase the effectiveness of the bank- lending channel. We test this conjecture in the context of the European Central Bank’s Corporate Sector Purchase Programme (CSPP), launched in June 2016, which increases the supply and lowers the cost of capital for eligible, i.e., investment-grade rated, firms. These firms substitute bank term loans with bond debt. Banks with a high share of CSPP-eligible firms in their loan portfolio increase lending to private but not public firms after the announcement of the CSPP. The increase in lending is driven by previously weakly capitalized banks (low Tier 1 ratio and banks from GIIPS countries) consistent with an easing of bank capital constraints through the CSPP.

Keywords: Monetary policy, CSPP, ECB, financial constraints, bond debt, real effects

JEL Classification: G01, G21, G28

Suggested Citation

Grosse-Rueschkamp, Benjamin and Steffen, Sascha and Streitz, Daniel, Cutting Out the Middleman – The ECB as Corporate Bond Investor (November 30, 2017). Available at SSRN: https://ssrn.com/abstract=2988158

Benjamin Grosse-Rueschkamp

ESMT European School of Management and Technology ( email )

Schlossplatz 1
10117 Berlin
Germany

Sascha Steffen (Contact Author)

Frankfurt School of Finance & Management ( email )

Sonnemannstr. 9 -11
Frankfurt, 60314
Germany

HOME PAGE: http://www.sascha-steffen.de

Daniel Streitz

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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