Bank loans during the 2008 quantitative easing |
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| Affiliation: | 1. Anderson School of Management, University of New Mexico, Albuquerque, NM 87131, USA;2. Department of Finance, National Chengchi University, No. 64, Section 2, ZhiNan Rd., Wenshan District, Taipei City 11605, Taiwan;3. Department of Information Management and Finance, National Yang Ming Chiao Tung University, Hsinchu City, Taiwan;4. Department of Applied Economics and Management, National Ilan University, No. 1, Section 1, Shennong Rd., Yilan City, Yilan County 260, Taiwan |
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| 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. |
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| Keywords: | Bank loans Default risk Firm value Quantitative easing |
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