QE crowds out bank loans – NBER paper

Asset purchases generate “counterproductive” cut in lending to firms, authors find

Us dollars

The injection of bank reserves during quantitative easing (QE) leads to a “counterproductive” decline in lending to firms, new research finds.

William Diamond, Zhengyang Jiang and Yiming Ma note the effect of QE could theoretically go either way. Higher liquid assets could cut the risk of a run and increase banks’ ability to lend. But regulatory constraints like the leverage ratio could also mean that higher reserves limit banks’ lending capacity.

Time series data shows QE in the US is

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