Making Room for the Needy: The Credit-Reallocation Effects of the ECB’s Corporate QE

43 Pages Posted: 6 Jul 2017 Last revised: 24 Nov 2017

See all articles by Oscar Arce

Oscar Arce

Banco de España

Ricardo Gimeno

Banco de España

Sergio Mayordomo

Banco de España

Date Written: November 2017

Abstract

We analyse how the European Central Bank’s purchases of corporate bonds under its Corporate Sector Purchase Programme (CSPP) affected the financing of Spanish non-financial firms. We first document that the announcement of the CSPP in March 2016 raised significantly the firms’ propensity to issue CSPP-eligible bonds. The flipside was a drop in the demand for bank loans by these firms. This drop in the demand for credit by bond-issuers, which are usually large corporations, unchained a positive and significant side effect on the flow of new loans extended to firms that do not issue bonds, typically smaller. Specifically, we find that around 78% of the drop in loans previously given to bond issuers was redirected to other companies, which led them to raise investment. This reallocation of credit was amplified by the ECB’s Targeted Longer Term Refinancing Operations (TLTRO).

Suggested Citation

Arce, Oscar and Gimeno, Ricardo and Mayordomo, Sergio, Making Room for the Needy: The Credit-Reallocation Effects of the ECB’s Corporate QE (November 2017). Available at SSRN: https://ssrn.com/abstract=2996964 or http://dx.doi.org/10.2139/ssrn.2996964

Oscar Arce

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Ricardo Gimeno

Banco de España ( email )

Madrid 28014
Spain

Sergio Mayordomo (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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