What is the Impact of a Major Unconventional Monetary Policy Intervention?

Abstract

WWe analyse how unconventional monetary policy affects bank lending standards during crises. We use a major central bank intervention that boosted the capital of banks, “whatever it takes” speech of the European Central Bank President, as a natural experiment. We compare changes in lending standards of euro area versus other banks in a third country, Mexico. The intervention reversed prior risk-taking––in volume, price, and risk ratings––of subsidiaries of euro area banks. Our findings show that large and credible unconventional monetary policies can reduce risk-taking domestically and abroad during crises, at least temporarily, adding a new dimension to the bank capital channel.

Keywords: Unconventional monetary policy, credit conditions, "whatever it takes"