Bank loans during the 2008 quantitative easing

Hsuan Chi Chen, Robin K. Chou, Chih-Yung Lin, Chien Lin Lu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We examine the effect of quantitative easing on the supply of bank loans. During the Fed's quantitative easing programs, lending banks reduced relatively more loan spreads, offered longer loan maturities, provided larger loans, and loosened more covenants for firms whose long-term bond ratings were below BBB and were lower than those with investment-grade bond ratings. Furthermore, we find that new bank loans in this period were associated with a reduction in a firm's value and an increase in default risk. These results indicate that banks took greater risk during the 2008 quantitative easing by relaxing lending standards to relatively riskier borrowers.

Original languageEnglish
Article number100974
JournalJournal of Financial Stability
Volume59
DOIs
StatePublished - Apr 2022

Keywords

  • Bank loans
  • Default risk
  • Firm value
  • Quantitative easing

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