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The Effect of Quantitative Easing on Lending Conditions

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  • Gil Nogueira
  • Luísa Farinha
  • Laura Blattner

Abstract

We analyze the effect of the ECB's Quantitative Easing program (Expanded Asset Purchase Program - EAPP) on bank lending using security-level bank balance sheet data combined with a comprehensive dataset on new loans in Portugal. Our identification relies on the fact that only a subset of Portuguese banks was exposed to EAPP via prior holdings of EAPP-eligible securities and origination of eligible ABS and covered bonds. Using a difference-in-differences specification with borrower and bank fixed effects, we find that lending rates to the same borrower drop by 64 b.p. at banks exposed to QE relative to banks not exposed to QE. Loan volumes to existing corporate clients grow by one percentage point faster at exposed banks relative non-exposed banks. This result is robust to including both bank and borrower*time fixed effects, as well as a wide range of loan and borrower characteristics. At the extensive margin, the probability of credit approval to a new corporate client is about 1 percentage point higher at exposed banks post-QE announcement.

Suggested Citation

  • Gil Nogueira & Luísa Farinha & Laura Blattner, 2016. "The Effect of Quantitative Easing on Lending Conditions," Working Papers w201608, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w201608
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    References listed on IDEAS

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    1. Johannes Stroebel & John B. Taylor, 2012. "Estimated Impact of the Federal Reserve’s Mortgage-Backed Securities Purchase Program," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 1-42, June.
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    4. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 3-43, March.
    5. Falagiarda, Matteo & Reitz, Stefan, 2015. "Announcements of ECB unconventional programs: Implications for the sovereign spreads of stressed euro area countries," Journal of International Money and Finance, Elsevier, vol. 53(C), pages 276-295.
    6. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 215-287.
    7. Beirne, John & Dalitz, Lars & Ejsing, Jacob & Grothe, Magdalena & Manganelli, Simone & Monar, Fernando & Sahel, Benjamin & Sušec, Matjaž & Tapking, Jens & Vong, Tana, 2011. "The impact of the Eurosystem's covered bond purchase programme on the primary and secondary markets," Occasional Paper Series 122, European Central Bank.
    8. Beirne, John & Tapking, Jens & Sahel, Benjamin & Sušec, Matjaž & Monar, Fernando & Manganelli, Simone & Grothe, Magdalena & Ejsing, Jacob & Dalitz, Lars & Vong, Tana, 2011. "The impact of the Eurosystem's covered bond purchase programme on the primary and secondary markets," Occasional Paper Series 122, European Central Bank.
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    Cited by:

    1. International Monetary Fund, 2016. "Portugal: Selected Issues," IMF Staff Country Reports 2016/301, International Monetary Fund.
    2. Diana Bonfim & Luísa Farinha & Sónia Félix, 2019. "Credit and the economy: lessons from a decade of research at Banco de Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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