Unconventional Monetary Policy and Bank Lending Behavior: The Yield-Induced Portfolio Rebalancing Effect
Exploiting a granular dataset of banks' security holdings I estimate the effect of unconventional monetary policy on bank lending. Using a difference-in-difference regression setup and holding the security composition of each bank constant at its level in January 2014, well in advance of an anticipation of the ECB's asset purchase program (APP), this paper provides evidence for the presence of a yield-induced portfolio rebalancing channel: Banks experiencing a higher average yield decline of their securities portfolio induced by unconventional expansionary monetary policy increase their real sector lending more strongly in response. The effect is particularly pronounced for banks facing many reinvestment decisions, which provides evidence for the presence of a search-for-yield motive. Capital gains of mark to market assets and the potential improvement of the equity position do not seem to matter robustly. Making use of data on bank-specific TLTRO uptakes, I can rule out that my results are driven by alternative, liquidity-driven transmission channels.