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


Giansante, Simone; Fatouh, Mahmoud; Ongena, Steven (2022). The asset reallocation channel of quantitative easing. The case of the UK. Journal of Corporate Finance, 77:102294.

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.

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.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scope:Discipline-based scholarship (basic research)
Language:English
Date:December 2022
Deposited On:08 Dec 2022 07:00
Last Modified:28 Apr 2024 01:40
Publisher:Elsevier
ISSN:0929-1199
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jcorpfin.2022.102294
Official URL:https://doi.org/10.1016/j.jcorpfin.2022.102294
Other Identification Number:merlin-id:22791
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