Now showing 1 - 2 of 2
  • Publication
    Do highly liquid banks insulate their lending behavior?
    (University College Dublin. Geary Institute, 2017-09-09)
    The role of banks in the transmission of monetary policy has been of significance lately. We aim to analyse the bank lending behaviour during changes in monetary policy. We test for loan supply shifts by segregating banks based on their liquidity along with size and capital ratio. This paper employs uninsured, non-reservable liabilities such as time deposits and investigates whether banks are able to insulate themselves during a monetary policy change. We find that the loan supply shock can be neutralized post monetary policy changes. Furthermore, the less liquid and small banks are unable to carry out such operations and are more affected by monetary shocks. This has important implication in the working of commercial banks and effects of monetary policy.
  • Publication
    The Impact of Quantitative Easing on Liquidity Creation
    (University College Dublin. School of Economics, 2020-04) ;
    We study the effects of the US Federal Reserve's large-scale asset purchase programs during 2008-2014 on bank liquidity creation. Banks create liquidity when they transform the liquid reserves resulted from quantitative easing into illiquid assets. As the composition of banks' loan portfolio affects the amount of liquidity it creates, the impact of quantitative easing on liquidity creation is not a priori clear. Using a difference-in-difference identification strategy, we find that banks that were more exposed to the policy increased lending relative to a control group. However, while the increase in lending was present across all three rounds of quantitative easing, we only find a strong effect on liquidity creation during the last round. This points to a weaker impact of quantitative easing on the real economy during the first two rounds, when affected banks transformed the reserves created through the asset purchase program into less illiquid assets, such as real estate mortgages.