Making Room for the Needy: The Credit-Reallocation Effects of the ECB's Corporate QE

Abstract

We analyse how the European Central Bank’s purchases of corporate bonds under its Corporate Sector Purchase Programme (CSPP) affected the financing of Spanish non-financial firms. We first document that the announcement of the CSPP in March 2016 raised significantly the firms’ propensity to issue CSPP-eligible bonds. The flipside was a drop in the demand for bank loans by these firms. This drop in the demand for credit by bond-issuers, which are usually large corporations, unchained a positive and significant side effect on the flow of new loans extended to firms that do not issue bonds, typically smaller. Specifically, we find that around 78% of the drop in loans previously given to bond issuers was redirected to other companies, which led them to raise investment. This reallocation of credit was amplified by the ECB’s Targeted Longer Term Refinancing Operations (TLTRO).