Quantitative Easing, Portfolio Rebalancing and Credit Growth: Micro Evidence from Germany

56 Pages Posted: 20 Aug 2018 Last revised: 18 Nov 2021

See all articles by Johannes Tischer

Johannes Tischer

Johannes Gutenberg University Mainz

Date Written: 2018

Abstract

This paper sheds light on the effect of quantitative easing (QE) on bank lending. Using data on German banks for 2014-2016, I show that QE encourages banks to rebalance from securities to loans. For identification, I use bond redemptions as exogenous variation in banks' need to rebalance their portfolio and hence their exposure to QE. I find that more exposed banks increase their loan growth during QE relative to other banks. The growth differential is larger when bond market yields decrease stronger than loan market yields and for banks with equity constraints. These results imply that QE can affect bank lending even if banks do not hold assets purchased under the QE program, by increasing incentives to invest in higher-yield assets.

Keywords: quantitative easing, bank lending, proprietary trading, monetary transmission

JEL Classification: E51, E58, G11, G21

Suggested Citation

Tischer, Johannes, Quantitative Easing, Portfolio Rebalancing and Credit Growth: Micro Evidence from Germany (2018). Deutsche Bundesbank Discussion Paper No. 20/2018, Available at SSRN: https://ssrn.com/abstract=3234184 or http://dx.doi.org/10.2139/ssrn.3234184

Johannes Tischer (Contact Author)

Johannes Gutenberg University Mainz ( email )

Saarstrasse 21
Mainz, D-55099
Germany

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