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Did QE Lead Banks to Relax Their Lending Standards? Evidence from the Federal Reserve's LSAPs

Author

Listed:
  • Robert J. Kurtzman
  • Stephan Luck
  • Thomas Zimmermann

Abstract

Using confidential loan officer survey data on lending standards and internal risk ratings on loans, we document an effect of large-scale asset purchase programs (LSAPs) on lending standards and risk-taking. We exploit cross-sectional variation in banks’ holdings of mortgage-backed securities to show that the first and third round of quantitative easing (QE1 and QE3) significantly lowered lending standards and increased loan risk characteristics. The magnitude of the effects is about the same in QE1 and QE3, and is comparable to the effect of a one percentage point decrease in the Fed funds target rate.

Suggested Citation

  • Robert J. Kurtzman & Stephan Luck & Thomas Zimmermann, 2017. "Did QE Lead Banks to Relax Their Lending Standards? Evidence from the Federal Reserve's LSAPs," Finance and Economics Discussion Series 2017-093, Board of Governors of the Federal Reserve System (US).
  • Handle: RePEc:fip:fedgfe:2017-93
    DOI: 10.17016/FEDS.2017.093
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    File URL: https://www.federalreserve.gov/econres/feds/files/2017093pap.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Robert J. Kurtzman & David Zeke, 2017. "Misallocation Costs of Digging Deeper into the Central Bank Toolkit," Finance and Economics Discussion Series 2017-076, Board of Governors of the Federal Reserve System (US).
    2. Stephan Luck & Thomas Zimmermann, 2018. "Employment Effects of Unconventional Monetary Policy : Evidence from QE," Finance and Economics Discussion Series 2018-071, Board of Governors of the Federal Reserve System (US).
    3. Tischer, Johannes, 2018. "Quantitative easing, portfolio rebalancing and credit growth: Micro evidence from Germany," Discussion Papers 20/2018, Deutsche Bundesbank.
    4. Byrne, David & Kelly, Robert, 2019. "Monetary policy expectations and risk-taking among U.S. banks," Research Technical Papers 6/RT/19, Central Bank of Ireland.
    5. Goetz, Martin, 2019. "Financing conditions and toxic emissions," SAFE Working Paper Series 254, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    6. Óscar Arce & Miguel García-Posada & Sergio Mayordomo & Steven Ongena, 2018. "Adapting lending policies when negative interest rates hit banks’ profits," Working Papers 1832, Banco de España;Working Papers Homepage.
    7. Kenneth N. Kuttner, 2018. "Outside the Box: Unconventional Monetary Policy in the Great Recession and Beyond," Department of Economics Working Papers 2018-04, Department of Economics, Williams College.

    More about this item

    Keywords

    Banks ; QE ; Risk ; SLOOS ; STBL;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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