Central Bank Funding and Credit Risk-Taking

48 Pages Posted: 4 Aug 2020

See all articles by Peter Bednarek

Peter Bednarek

Deutsche Bundesbank

Valeriya Dinger

Universität Osnabrück

Daniel te Kaat

University of Groningen

Natalja von Westernhagen

Deutsche Bundesbank

Date Written: 2020

Abstract

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

Suggested Citation

Bednarek, Peter and Dinger, Valeriya and te Kaat, Daniel and von Westernhagen, Natalja, Central Bank Funding and Credit Risk-Taking (2020). Deutsche Bundesbank Discussion Paper No. 36/2020, Available at SSRN: https://ssrn.com/abstract=3665127 or http://dx.doi.org/10.2139/ssrn.3665127

Peter Bednarek (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
004969 9566-8972 (Phone)

HOME PAGE: http://www.bundesbank.de

Valeriya Dinger

Universität Osnabrück ( email )

Neuer Graben
Osnabrück, 49074
Germany

Daniel Te Kaat

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Natalja Von Westernhagen

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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