Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area

Abstract

In the presence of negative monetary-policy rates and a zero lower bound on deposit rates, banks that are more exposed to central banks' asset-purchase programs reduce their lending to the real economy by more than their counterparts. When banks face a lower bound on customer deposit rates, an asset swap between securities and reserves reduces banks' net worth as the cost of holding reserves cannot be matched with a reduction in their cost of funding. Exploiting euro-area syndicated lending data and the German credit registry, we provide evidence that deposit-reliant banks with relatively higher funding costs and greater exposure to large-scale asset purchases reduce corporate lending relatively more, have lower stock returns, and rebalance their interbank lending from safe to risky countries.

Is Quantitative Easing Productive? The Role of Bank Lending in the Monetary Transmission Process

“…Falling interest rates in developed countries over a long period have a hemlock effect on the banking sector, i.e., they rely on cheaper financing or speculative profits in financial markets instead of seeking efficiency. Bittner et al (2021) confirm this finding by observing that when monetary policy rates are negative, and the lower bound on deposit rates is zero, those banks that are more affected by the ECB's bond-buying programs reduce their lending to the real economy more than their competitors.…”

Making Sense of Negative Nominal Interest Rates

“…The authors emphasize that quantitative easing, by leading to a larger central bank balance sheet, could make negative rates less effective because commercial banks are more severely affected. These findings are echoed by de Groot and Haas (2021) and Bittner et al (2021). By contrast, Girotti et al (2021) study the interaction between quantitative easing policies and negative rates empirically, and argue that there might be complementarities between them (likely driven by the opportunity cost of lending channel).…”

The Anatomy of Banks’ IT Investments: Drivers and Implications

“…As the individual contributions are not recorded in most of the cases, we distribute two-thirds and one-third of the total loan amount to lead arrangers and other participants, respectively, following, for example, Chodorow-Reich (2014). In particular, we follow the cleaning procedure of Bittner et al (2021).…”