QE and the Bank Lending Channel in the United Kingdom

Butt, Nicholas; Churm, Rohan; McMahon, Michael; Morotz, Arpad; Schanz, Jochen

doi:10.2139/ssrn.2673293

Cited by 22 publications

(23 citation statements)

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“…Papers like Carpinelli and Crosignani (2017), Garcia-Posada and Marchetti (2016) or Andrade et al (2015) analyze the effect of the 3-year Longer Term Refinancing Operations (3y-LTROs) that were implemented in the Eurozone in 2011 and 2012 in the wake of the Eurozone sovereign debt crisis to prevent a funding squeeze of the banking sector. Butt et al (2014) focus on banks' deposits as the key pass-through variable of assets sales by the banks' deponents (e.g. institutional investors etc.).…”

Section: Related Literaturementioning

confidence: 99%

“…Kandrac and Schlusche, 2016;Butt, Churm, McMahon, Morotz, and Schanz, 2014;Carpinelli and Crosignani, 2017;Andrade, Cahn, Fraisse, and Mésonnier, 2015). However, little work has been done on a rebalancing that is priceor yield-induced.…”

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confidence: 99%

“…I include the central bank reserves to assets ratio to control for any potential sales of securities by the bank to the central bank in the context of the APP and to control for a possible reserve-induced transmission channel (Kandrac and Schlusche, 2016). The deposit to assets ratio controls for another liquidity-driven transmission channel operating through deposits (Butt et al, 2014). I further include an interbank lending to assets ratio to control for the funding situation of the bank and the net interest margin to control for the profitability and the importance of credit business.…”

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confidence: 99%

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

Paludkiewicz

2018

SSRN Journal

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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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confidence: 99%

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confidence: 99%

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

Paludkiewicz

2018

SSRN Journal

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“…The results show that banks and NFCs globally reduced their nominal spending and seem to repair their balance sheets after the crisis, confirming a similar result by Butt et al (2012). Additionally, Butt, et al (2014) find that QE in U.K. gave rise to deposits that are likely to be short-lived in a given bank ('flighty' deposits), and as such its effect on bank lending is diminished. Banks sold low-yield government debt to non-banks and thus non-bank deposits in the banking sectors declined.…”

Section: B Impact On Global Liquidity Global Monetary Aggregates Amentioning

confidence: 99%

The Impact of Unconventional Monetary Policy Measures by the Systemic Four on Global Liquidity and Monetary Conditions

Korniyenko

Loukoianova²

2015

IMF Working Papers

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The paper examines the impact of unconventional monetary policy measures (UMPMs) implemented since 2008 in the United States, the United Kingdom, Euro area and Japanthe Systemic Four-on global monetary and liquidity conditions. Overall, the results show positive significant relationships. However, there are differences in the impact of the UMPMs of individual S4 countries on these conditions in other countries. UMPMs of the Bank of Japan have positive association with global liquidity but negative association with securities issuance. The quantitative easing (QE) of the Bank of England has the opposite association. Results for the quantitative easing measures of the United States Federal Reserve System (U.S. Fed) and the ECB UMPMs are more mixed.

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“…Other non-conventional monetary policy measures, such as quantitative easing (QE), were studied by Butt et al (2014) and Joyce et al (2011). The aim of QE was to lower longer-term interest rates so as to stimulate aggregate demand and ensure the outlook for inflation remained consistent with the MPC's target.…”

Section: Introductionmentioning

confidence: 99%

Incentivising Lending to SMEs with the Funding for Lending Scheme

2016

OECD Economics Department Working Papers

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JT03406912Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. ECO/WKP(2016)89 Unclassified English -Or. English ECO/WKP(2016)89 2 OECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author.Working Papers describe preliminary results or research in progress by the author(s) and are published to stimulate discussion on a broad range of issues on which the OECD works.Comments on Working Papers are welcomed, and may be sent to OECD Economics Department, 2 rue André Pascal, 75775 Paris Cedex 16, France, or by e-mail to eco.contact@oecd.org.All Economics Department Working Papers are available at www.oecd.org/eco/workingpapers This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.Latvia was not an OECD member at the time of preparation of this publication. Accordingly, Latvia does not appear in the list of OECD members and is not included in the zone aggregates. © OECD (2016)You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for commercial use and translation rights should be submitted to rights@oecd.org ECO/WKP(2016) This study explores the effectiveness of the incentive mechanisms embedded within the UK's Funding for Lending Scheme (FLS) for banks' to expand their supply of lending to medium sized enterprises (SMEs). The FLS was announced by the Bank of England and HM Treasury in June 2012, with the aim of improving the supply of credit to the UK real economy. Despite the prevailing low level of risk-free interest rates, UK banks' funding costs were elevated at the time of the Scheme's introduction, and the intention was to provide lenders with a stable source of lower-cost funding to support credit provision to the real economy. The Scheme's design built in direct incentives for banks to support lending to the real economy, by linking both the price and quantity of funding available through the Scheme to their lending performance. This paper looks for evidence of the effectiveness of these incentives, exploiting a modification of ...

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QE and the Bank Lending Channel in the United Kingdom

Cited by 22 publications

References 22 publications

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

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

The Impact of Unconventional Monetary Policy Measures by the Systemic Four on Global Liquidity and Monetary Conditions

Incentivising Lending to SMEs with the Funding for Lending Scheme

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