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Quantitative easing, accounting and prudential frameworks, and bank lending

Author

Listed:
  • Andrea Orame

    (Bank of Italy)

  • Rodney Ramcharan

    (University of Southern California)

  • Roberto Robatto

    (University of Wisconsin-Madison)

Abstract

We study whether regulation that relies on historical cost accounting (HCA) rather than mark-to-market accounting (MMA) to insulate banks' net worth from financial market volatility affects the transmission of quantitative easing (QE) through the bank lending channel. Using detailed supervisory data from Italian banks and taking advantage of a change in accounting rules, we find that HCA makes banks significantly less responsive to QE than MMA. Hence, while HCA can insulate banks' balance sheets during periods of distress, it also weakens the effectiveness of unconventional monetary policy in reducing firms' credit constraints through the bank lending channel.

Suggested Citation

  • Andrea Orame & Rodney Ramcharan & Roberto Robatto, 2023. "Quantitative easing, accounting and prudential frameworks, and bank lending," Temi di discussione (Economic working papers) 1412, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1412_23
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    More about this item

    Keywords

    unconventional monetary policy; bank lending channel; sovereign default premia; regulatory capital; historical cost accounting;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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