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Reserves Regulation and the Risk-Taking Channel

Author

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  • Manthos Delis

    (Audencia Business School)

  • Sotirios Kokas

    (University of Essex)

  • Alexandros Kontonikas

    (University of Essex)

Abstract

We examine how a policy change by the FDIC, which unexpectedly exempted some banks, affects corporate lending via changes in reserves during the Quantitative Easing (QE) era. To address the endogeneity of reserves, we use a unique hand-collected dataset on the bank's share of exemption from the policy shift, and differentiate between loan demand and loan supply. We find important differences in loan-level outcomes, attributed to the heterogeneous impact of the new regulation on the net return on holding reserves. The effectiveness of the risk-taking channel is significantly weaker for banks with larger exemption shares and this has real effects in terms of borrowers' leverage, growth, and return on assets.

Suggested Citation

  • Manthos Delis & Sotirios Kokas & Alexandros Kontonikas, 2024. "Reserves Regulation and the Risk-Taking Channel ," Post-Print hal-04768503, HAL.
    • Handle: RePEc:hal:journl:hal-04768503
    DOI: 10.1016/j.jcorpfin.2024.102689
    Note: View the original document on HAL open archive server: https://hal.science/hal-04768503v1
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    References listed on IDEAS

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