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).

Research QuestionUnconventional monetary policy measures in the Eurozone seem to have led to a compression of bond yields that was stronger than the decrease of interest rates on newly issued loans charged by banks in Germany. Furthermore, the volume of credit has increased in relation to security holdings of German banks. This paper examines whether the change in the relative price between bonds and credit resulted in a rebalancing of banks between the securities and credit portfolio. ContributionThis paper uses a fully anonymized dataset on banks' security holdings along with bank balance sheets and data from monetary policy implementation. This granular data facilitates to answer the above question. In addition to the announcement and expectation effects of unconventional monetary policy measures on bond yields, the analysis also exploits the reinvestment decisions that banks have to make when facing maturing securities. ResultsResults suggest that banks facing higher reductions of the average yield of their securities portfolio increase their lending to non-financial firms and households more strongly in response. The effect is particularly pronounced for banks that face more reinvestment decision due to a high fraction of maturing assets. Additionally, banks more affected by the unconventional monetary policy induced yield decline decrease their overall security holdings, especially reducing the holdings of securities with the highest drop in yield. My results shed light on the role of banks in the transmission of unconventional monetary policy. Nichttechnische ZusammenfassungFragestellung Die unkonventionellen geldpolitischen Maßnahmen in der Eurozone scheinen Anleiherenditen stärker verringert zu haben als die Zinssätze, die Banken in Deutschland für ihre Kredite fordern. Darüber hinaus hat sich das Kreditvolumen in Relation zu den Wertpapierbeständen deutscher Banken erhöht. Dieses Papier untersucht, ob die ¨Anderung des relativen Preises zwischen Anleihen und Krediten Banken dazu veranlasste, ihre Mittel von dem Anleiheportfolio ins Kreditportfolio umzuschichten. Beitrag Dieses Papier verwendet einen vollständig anonymisierten Datensatz zu den Wertpapierbeständen deutscher Banken, ihren Bankbilanzen und Daten zu der geldpolitischen Umsetzung. Die granularen Daten ermöglichen die Untersuchung der Frage von oben: In der Analyse werden neben den Ankündigungs-und Erwartungseffekten unkonventioneller geldpolitischer Maßnahmen auf die Anleiherenditen auch die Reinvestitionsentscheidung, die Banken aufgrund auslaufender Wertpapiere treffen müssen, genutzt. Ergebnisse Die Ergebnisse deuten darauf hin, dass Banken mit höheren Renditerückgängen ihres Wertpapierportfolios ihre Neukreditvergabe an nicht finanzielle Unternehmen und Haushalte stärker erhöhen. Der Effekt ist besonders bei denjenigen Banken ausgeprägt, welche aufgrund einer hohen Anzahl an fällig werdenden Wertpapieren viele Reinvestitionsentscheidungen treffen müssen. Darüber hinaus verringern Banken, die stärker von dem Renditerückgang betroffen sind,...

Unconventional monetary policy measures in the Eurozone seem to have led to a compression of bond yields that was stronger than the decrease of interest rates on newly issued loans charged by banks in Germany. Furthermore, the volume of credit has increased in relation to security holdings of German banks. This paper examines whether the change in the relative price between bonds and credit resulted in a rebalancing of banks between the securities and credit portfolio. ContributionThis paper uses a fully anonymized dataset on banks' security holdings along with bank balance sheets and data from monetary policy implementation. This granular data facilitates to answer the above question. In addition to the announcement and expectation effects of unconventional monetary policy measures on bond yields, the analysis also exploits the reinvestment decisions that banks have to make when facing maturing securities. ResultsResults suggest that banks facing higher reductions of the average yield of their securities portfolio increase their lending to non-financial firms and households more strongly in response. The effect is particularly pronounced for banks that face more reinvestment decision due to a high fraction of maturing assets. Additionally, banks more affected by the unconventional monetary policy induced yield decline decrease their overall security holdings, especially reducing the holdings of securities with the highest drop in yield. My results shed light on the role of banks in the transmission of unconventional monetary policy. Nichttechnische Zusammenfassung AbstractExploiting a granular dataset of banks' security holdings I assess the impact of unconventional monetary policy on bank lending and security holdings. Using a difference-in-differences regression setup and holding the security composition of each bank constant at its level in January 2014, well in advance of an anticipation of the ECB's asset purchase program (APP), this paper provides evidence for the presence of a yield-induced portfolio rebalancing channel: Banks experiencing a higher average yield decline of their securities portfolio -induced by unconventional expansionary 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 a higher average yield decline reduce their overall investments in securities more intensely, especially in those securities that had larger valuation gains. These novel findings suggest that banks target a specific yield level and shift their investments from the securities to the (higheryielding) credit portfolio. Making use of data on bank-specific TLTRO uptakes, my results do not seem to be driven by alternative, liquidity-driven transmission channels.

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