Monetary Policy at Work: Security and Credit Application Registers Evidence

91 Pages Posted: 2 May 2017 Last revised: 16 Jun 2020

See all articles by José-Luis Peydró

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Andrea Polo

Luiss Guido Carli University - Department of Economics and Finance; Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Einaudi Institute for Economics and Finance (EIEF); Barcelona Graduate School of Economics (Barcelona GSE); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Enrico Sette

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: April 2017

Abstract

Monetary policy transmission may be impaired if banks rebalance their portfolios towards securities to e.g. risk-shift or hoard liquidity. We identify the bank lending and risk-taking channels by exploiting â?? Italian's unique â?? credit and security registers. In crisis times, with higher ECB liquidity, less capitalized banks react by increasing securities over credit supply, inducing worse firm-level real effects. However, they buy securities with lower yields and haircuts, thus reaching-for-safety and liquidity. Differently, in pre-crisis time, securities do not crowd-out credit supply. The substitution from lending to securities in crisis times helps less capitalized banks to repair their balance-sheets and then restart credit supply with a one year-lag.

Keywords: available for sale, bank capital, credit, Euro Area Sovereign Debt crisis, held to maturity, Lehman crisis, monetary policy, reach-for-yield, securities, trading book

JEL Classification: E52, E58, G01, G21, G28

Suggested Citation

Peydro, Jose-Luis and Polo, Andrea and Sette, Enrico, Monetary Policy at Work: Security and Credit Application Registers Evidence (April 2017). CEPR Discussion Paper No. DP12011, Available at SSRN: https://ssrn.com/abstract=2961774

Jose-Luis Peydro (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Andrea Polo

Luiss Guido Carli University - Department of Economics and Finance ( email )

Via Kennedy 6
Parma, 43100 - I
Italy

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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