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The asset reallocation channel of quantitative easing. The case of the UK

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  • Giansante, Simone
  • Fatouh, Mahmoud
  • Ongena, Steven

Abstract

We investigate the impact of the Bank of England's asset purchase program (APP) on the composition of assets of UK banks with unique data on the received reserves injections. The Monetary Policy Committee (MPC) didn’t expect there to be strong transmission of the APP’s impact through the bank lending channel. We find that compared to the control group, treated banks reallocated their assets towards lower risk-weighted investments, such as government securities, but did not provide more credit to the real economy. Overall, our findings suggest that when banks are not adequately capitalised, risk-based capital constraints can limit the effectiveness of expansionary unconventional monetary policies and provide incentives for carry trade activities.

Suggested Citation

  • Giansante, Simone & Fatouh, Mahmoud & Ongena, Steven, 2022. "The asset reallocation channel of quantitative easing. The case of the UK," Journal of Corporate Finance, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:corfin:v:77:y:2022:i:c:s0929119922001377
    DOI: 10.1016/j.jcorpfin.2022.102294
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    Cited by:

    1. Mahmoud Fatouh & Simone Giansante & Steven Ongena, 2023. "Quantitative Easing and the Functioning of the Gilts Repo Market," Swiss Finance Institute Research Paper Series 23-82, Swiss Finance Institute.
    2. Francisco Serranito & Philipp RODERWEIS & Jamel Saadaoui, 2023. "Is Quantitative Easing Productive? The Role of Bank Lending in the Monetary Transmission Process," EconomiX Working Papers 2023-17, University of Paris Nanterre, EconomiX.
    3. Fatouh, Mahmoud & Giansante, Simone & Ongena, Steven, 2023. "Leverage ratio and risk-taking: theory and practice," Bank of England working papers 1048, Bank of England.
    4. Philipp Roderweis & Jamel Saadaoui & Francisco Serranito, 2023. "The Unintended Consequences of ECB’s Asset Purchases. How Excess Reserves Shape Bank Lending," Working Papers of BETA 2023-34, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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    More about this item

    Keywords

    Finance; Monetary policy; Quantitative easing; Bank lending;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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