September 2017

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

Robert Kurtzman, Stephan Luck, and Tom Zimmermann


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.

Accessible materials (.zip)

Keywords: Banks, QE, Risk, SLOOS, STBL


PDF: Full Paper

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Last Update: January 09, 2020