Central Bank Funding and Credit Risk-Taking
48 Pages Posted: 4 Aug 2020
Date Written: 2020
This paper examines the relationship between central bank funding and credit risk-taking. Employing comprehensive bank-firm-level data from the German credit registry during 2009:Q1-2014:Q4, we find that borrowing from the central bank is associated with rebalancing of bank portfolios towards ex-ante riskier firms. We further establish that this relationship is associated with the ECB's maturity extensions and that the risk-taking sensitivity of banks borrowing from the ECB is independent of idiosyncratic bank characteristics. Finally, we highlight that these shifts in bank lending might lead to an ex-post deterioration of bank balance sheets, but increase firm-level investment and employment.
Keywords: Monetary Policy, LTRO, Bank Lending, Credit Risk-Taking, Real Effects, TFP Growth
JEL Classification: E44, E52, G21, O40
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