The Impact of Quantitative Easing on Bank Loan Supply and Monetary Policy Implementation in the Euro Area

Horst, Maximilian; Neyer, Ulrike

doi:10.1515/roe-2019-0033

Cited by 12 publications

(6 citation statements)

References 37 publications

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“…T2 balances during this period are a symptom of increased levels of distrust and risk perception as well as increased information asymmetries 44 If necessary, the ECB could also try to support the reactivation of the interbank money market in a first step by collateralizing the credit operations to increase the level of trust between commercial banks. 45 For detailed information with regard to the distinction between a structural liquidity deficit and a structural liquidity surplus as well as their significance for monetary policy implementation, see, e. g., Horst/Neyer (2019). Credit and Capital Markets 1 / 2022 which implied tension in the money market and funding stress in the euro area banking sector.…”

Section: Discussionmentioning

confidence: 99%

“…This new system temporarily increased interbank market activities and thereby induced cross-border area residents. Therefore, it refers to these deposits of non-euro area residents held on accounts with euro area commercial banks as "liabilities of euro area monetary financial institutions (excluding the Eurosystem) towards non-euro area residents" in the consolidated balance sheet of the monetary financial institutions (see also Horst/Neyer (2019)). 26 For more information with regard to the respective average monthly purchase pace since the APP beginning in 2015, see European Central Bank (2020a).…”

Section: Target2 Balances and The Eurosystem's Asset Purchase Program...mentioning

confidence: 99%

“…For further information with regard to the QE-induced creation of excess liquidity and its heterogeneous distribution across euro area countries, see alsoHorst/Neyer (2019) andHorst et al (2020).24 Around 50 % of the overall purchase volume is conducted with UK-based banks that access T2 via the German central bank(Coeuré 2017;Alvarez et al 2017).OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.55.1.3 | Generated on 2023-01-16 13:29:16…”

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Do Large TARGET2 Balances Bear Risks for the Euro Area?

Horst¹,

Neyer²

2022

CCM

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Large increases in TARGET2 balances in the euro area since 2008 have led to concern and debate about the appropriate interpretation and policy reaction – in particular in TARGET2 creditor countries such as Germany. Against this background, we examine the main drivers of the increases and asymmetries in TARGET2 balances that have emerged in the context of the financial and sovereign debt crises as well as in the context of the Eurosystem’s implementation of quantitative easing (QE) and the COVID-19 pandemic. Moreover, this paper analyzes the potential risks for euro area member states in the case of (i) the unchanged continuity of the monetary union, (ii) the withdrawal of a member state with (large) TARGET2 liabilities, and (iii) the break-up of the whole monetary union. Depending on the outcome of exit negotiations and the operational handling, there can be direct risks in the form of default losses of TARGET2 balances and indirect risks in the form of threat potentials if TARGET2 debtor countries pretend to plan to leave the euro area. Based on this, we discuss adaption options for the TARGET2 payment system and consider an exit from the ECB’s accommodative monetary policy in order to scale back the high amount of excess liquidity in the euro area banking sector which is the prerequisite for the emergence of TARGET2 balances.

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Section: Discussionmentioning

confidence: 99%

Section: Target2 Balances and The Eurosystem's Asset Purchase Program...mentioning

confidence: 99%

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confidence: 99%

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Do Large TARGET2 Balances Bear Risks for the Euro Area?

Horst¹,

Neyer²

2022

CCM

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“…• In addition, the structure of banks' loan deposits and supply can affect the effectiveness of monetary policy (Girotti, 2018;Horst and Neyer, 2019). Thus, the loan-todeposit ratio (LTD, and the variable is denoted as "Loan_to_Deposit") is used to proxy for the impacts of funding availability.…”

Section: Confounding Variablesmentioning

confidence: 99%

Uncovering Heterogeneous Regional Impacts of Chinese Monetary Policy

Tsang¹

2021

SSRN Journal

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This paper applies causal machine learning methods to analyze the heterogeneous regional impacts of monetary policy in China. The method uncovers the heterogeneous regional impacts of different monetary policy stances on the provincial figures for real GDP growth, CPI inflation and loan growth compared to the national averages. The varying effects of expansionary and contractionary monetary policy phases on Chinese provinces are highlighted and explained. Subsequently, applying interpretable machine learning, the empirical results show that the credit channel is the main channel affecting the regional impacts of monetary policy. An imminent conclusion of the uneven provincial responses to the "one size fits all" monetary policy is that different policymakers should coordinate their efforts to search for the optimal fiscal and monetary policy mix.

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“…When the fall in net interest income (from a policy rate cut) is suffciently large, bank net worth suffers which reduces banks' ability to intermediate funds to borrowers. This mechanism also exists in Horst and Neyer (2019), where excess reserves created from QE is costly if negative interest rate policies are implemented. Moreover, Gigineishvili (2011) fnds bank behaviour that attempt to protect NIMs: there is weaker adjustment of lending rates in response to changes market rates in countries with lower NIMs.…”

Section: Relation To the Literaturementioning

confidence: 99%

Liquidity and Monetary Transmission: A Quasi-Experimental Approach

Wanengkirtyo

Miller

2020

SSRN Journal

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In the face of lower real interest rates, central bank balance sheets are likely to remain larger relative to pre-crisis levels, resulting in greater banking system liquidity. However, there is little evidence on the impact of higher liquidity on credit supply and the monetary transmission mechanism in the 'new normal'. We exploit a novel dataset on bank liquidity positions arising from a unique regulatory regime and combine it with a highly-detailed, loan-level administrative dataset on UK mortgages. Using the design of quantitative easing auctions as an instrument for liquidity to address endogeneity, we find that more liquid banks charge slightly higher mortgage interest rates, and pass on significantly less changes in risk-free rates. We explain this through bank behaviour that attempts to preserve net interest margins in the face of holding low-yielding liquidity. Consistent with this, we find excess liquidity leads to reaching-for-yield responses in banks' mortgage risk-taking. Additionally, the results shed light on the optimal mix between (un)conventional monetary policy tools. Policies that boost bank net interest margins are more likely to help the transmission of risk-free rates to lending rates.

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The Impact of Quantitative Easing on Bank Loan Supply and Monetary Policy Implementation in the Euro Area

Cited by 12 publications

References 37 publications

Do Large TARGET2 Balances Bear Risks for the Euro Area?

Do Large TARGET2 Balances Bear Risks for the Euro Area?

Uncovering Heterogeneous Regional Impacts of Chinese Monetary Policy

Liquidity and Monetary Transmission: A Quasi-Experimental Approach

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