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Unconventional Monetary Policy, Bank Lending, and Security Holdings: The Yield-Induced Portfolio-Rebalancing Channel

Published online by Cambridge University Press:  12 December 2019

Karol Paludkiewicz Open the ORCID record for Karol Paludkiewicz [Opens in a new window]
Karol Paludkiewicz*
Affiliation:
Paludkiewicz, karol.paludkiewicz@bundesbank.de, Deutsche Bundesbank
*
Paludkiewicz (corresponding author), karol.paludkiewicz@bundesbank.de
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Abstract

This article studies the impact of unconventional monetary policy on bank lending and security holdings. I exploit granular security register data and use a difference- in-differences regression setup to provide evidence for a yield-induced portfolio rebalancing: Banks experiencing large average yield declines in their securities portfolio, induced by unconventional monetary policy, increase their real-sector lending more strongly relative to other banks. The effect is stronger for banks facing many reinvestment decisions. Moreover, I find that banks with large yield declines reduce their government bond holdings and sell securities bought under the asset-purchase program of the European Central Bank (ECB).

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 2 , March 2021 , pp. 531 - 568
Copyright
© The Author(s). Published by Cambridge University Press on behalf of Michael G. Foster School of Business, University of Washington 2019

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Footnotes

For their helpful comments, I thank Puriya Abbassi, Olivier Darmouni (the referee), Pierre De Leo (discussant), Falko Fecht, Kerstin Gies, Rainer Haselmann, Rajkamal Iyer, Hannah Paule-Paludkiewicz, José-Luis Peydró (discussant), Mathieu Picault (discussant), Isabel Schnabel, Karsten Stroborn, Gregor von Schweinitz (discussant), Yannick Timmer, Ladislav Wintr (discussant), and participants at the Research Seminar at Deutsche Bundesbank, the Money and Macro Brown Bag Seminar and the Finance Brown Bag Seminar at Goethe University Frankfurt, the 2018 European Central Bank (ECB) Research Workshop on Banking Analysis for Monetary Policy, the 2018 Conference of the French Finance Association (AFFI), the 2018 Spring Meeting of Young Economists (SMYE), the 2018 Annual Meeting of the European Finance Association (EFA), the 2018 Annual Congress of the European Economic Association (EEA), and the 2018 Annual Meeting of the German Economic Association (VfS). Any and all remaining errors are my own. The views expressed in this article are those of the author and do not necessarily reflect the views of the Deutsche Bundesbank or the Eurosystem.

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