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Paper #1565

Monetary policy at work: Security and credit application registers evidence
José-Luis Peydró, Andrea Polo i Sette Enrico
Abril 2017 (Revisió: Agost 2018)
Monetary policy transmission may be impaired if banks rebalance their portfolios towards securities to pursue e.g. risk-shifting or liquidity hoarding. We identify the bank lending and risk-taking channels by exploiting – Italian’s unique – credit and security registers. In crisis times, with softer ECB’s monetary policy conditions, less capitalized banks increase securities over credit supply, with associated firm-level real effects. However, less capitalized banks buy securities with lower yield (haircuts), even within securities with identical regulatory risk weights, thus reaching-for-safety/liquidity. Results are only present in marked-to-market portfolios. The evidence suggests that liquidity and risk-bearing capacity – rather than riskshifting or regulatory arbitrage – are key drivers of banks’ behavior. Differently, in pre-crisis times, securities do not crowd-out loan application granting by less capitalized banks.
Paraules clau:
monetary policy, securities, loan applications, bank capital, reach-for-yield, held to maturity, available for sale, trading book, haircuts, regulatory arbitrage, sovereign debt.
Codis JEL:
E51, E52, E58, G01, G21
Àrea de Recerca:
Finances i Comptabilitat / Macroeconomia i Economia Internacional / Economia Laboral, Pública, de Desenvolupament i de la Salut
R&R at the Journal of Financial Economics.

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