Monetary policy at work: Security and credit application registers evidence

Peydró, José-Luis; Polo, Andrea, 1983-; Enrico, Sette

Monetary policy at work: Security and credit application registers evidence

License

Citation

Review of Financial Economics, 140(3), June 2021, pp. 789-814, DOI: https://doi.org/10.1016/j.jfineco.2021.01.008

Abstract

Monetary policy transmission may be impaired if banks rebalance their portfolios towards securities to e.g. risk-shift or hoard liquidity. We identify the bank lending and risk-taking channels by exploiting - Italian's unique - credit and security registers. In crisis times, with higher ECB liquidity, less capitalized banks react by increasing securities over credit supply, inducing worse firm-level real effects. However, they buy securities with lower yields and haircuts, thus reaching-for-safety and liquidity. Differently, in pre-crisis time, securities do not crowd-out credit supply. The substitution from lending to securities in crisis times helps less capitalized banks to repair their balance-sheets and then restart credit supply with a one year-lag.