Monetary Policy at Work: Security and Credit Application Registers Evidence

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