The Effect of Large Scale Asset Purchases in 2020 on Bank Lending

Abstract

The paper estimates the effect of large scale asset purchases by the Federal Reserve System on bank lending in 2020. The identification strategy exploits the cross-sectional variation in treasury and mortgage-backed security holdings in the bank balance sheet. The identification strategy used is augmented inverse propensity weighing to get unbiased, consistent and efficient estimates. The results show that large scale asset purchases reduced total lending by 0.23% and increased riskier commercial and industrial lending by up to 0.85% and real estate lending by up to 1.38%.