Quantitative Easing, Safe Asset Scarcity and Bank Lending

46 Pages Posted: 22 Nov 2021

Date Written: 2021

Abstract

The Eurosystem's Public Sector Purchase Programme (PSPP) increased the scarcity of safe assets, which caused significant declines and substantial dispersion in European repo rates. However, banks holding these safe assets benefited from this development: First, using the German security register, this paper shows that scarcity affects bank funding costs, as their collateral supply is determined by their ex ante securities holdings and repo rates. Second, it makes use of the German credit register to show that asset scarcity had real effects: Banks more exposed to asset scarcity increased their credit supply.

Keywords: Quantitative easing, safe asset scarcity, repo rates, bank lending, monetary transmission

JEL Classification: E51, E58, G11, G21

Suggested Citation

Fischer, Johannes J., Quantitative Easing, Safe Asset Scarcity and Bank Lending (2021). Deutsche Bundesbank Discussion Paper No. 35/2021, Available at SSRN: https://ssrn.com/abstract=3967815 or http://dx.doi.org/10.2139/ssrn.3967815

Johannes J. Fischer (Contact Author)

Deutsche Bundesbank ( email )

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

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