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Journal of Banking & Finance Vol. 138 2022

Did QE lead banks to relax their lending standards? Evidence from the Federal Reserve’s LSAPs

Robert Kurtzman1,2; Stephan Luck1,2; Tom Zimmermann3

1 Federal Reserve Board of Governors · 2 Federal Reserve · 3 University of Cologne, QuantCo, Inc., United States

Abstract

Using confidential loan officer survey data on lending standards and internal risk ratings on loans, we document an effect of large-scale asset purchase programs (LSAPs) on lending standards and risk-taking. We exploit cross-sectional variation in banks’ holdings of mortgage-backed securities to show that the first and third round of quantitative easing (QE1 and QE3) significantly lowered lending standards and increased loan risk characteristics. The magnitude of the effects is about the same in QE1 and QE3, and is comparable to the effect of a one percentage point decrease in the Fed funds target rate.

DOI
10.1016/j.jbankfin.2018.08.009
Volume
138
Pages
105403
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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