Reserves Regulation and the Risk-Taking Channel

28 Pages Posted: 9 Feb 2021 Last revised: 16 Jan 2024

See all articles by Manthos D. Delis

Manthos D. Delis

Audencia Business School

Sotirios Kokas

University of Essex - Essex Business School

Alexandros Kontonikas

Essex Business School

Date Written: January 31, 2019

Abstract

We examine how a policy change by the FDIC, which unexpectedly exempted some banks, affects corporate lending via changes in reserves during the Quantitative Easing (QE) era. To address the endogeneity of reserves, we use a unique hand-collected dataset on the bank's share of exemption from the policy shift, and differentiate between loan demand and loan supply. We find important differences in loan-level outcomes, attributed to the heterogeneous impact of the new regulation on the net return on holding reserves. The effectiveness of the risk-taking channel is significantly weaker for banks with larger exemption shares and this has real effects in terms of borrowers' leverage, growth, and return on assets.

Keywords: FDIC regulation, Bank lending, Quantitative easing, Syndicated loans

JEL Classification: E52, G21, G28

Suggested Citation

Delis, Manthos D. and Kokas, Sotirios and Kontonikas, Alexandros, Reserves Regulation and the Risk-Taking Channel (January 31, 2019). Available at SSRN: https://ssrn.com/abstract=3776618 or http://dx.doi.org/10.2139/ssrn.3776618

Manthos D. Delis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Sotirios Kokas (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Alexandros Kontonikas

Essex Business School ( email )

University of Essex
Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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