What Did 1 Trillion Euros Buy Us? Evidence on the Real Effects of Quantitative Easing in Europe

This paper studies the transmission channels of the European Central Bank’s (ECB) asset purchase programs via the banking sector using proprietary data from the Bank of Portugal. Banks that hold larger amounts of assets eligible for ECB purchase prior to announcement of the programs realize trading profits from selling these assets following the announcement. Banks use most of these gains to increase their cash holdings. We find a moderate positive effect on loan approval rates for new corporate borrowers, which is stronger for riskier borrowers. However, banks do not offer significantly lower interest rates or provide additional loans to existing customers. We investigate an additional origination channel. The ECB’s purchase of asset-backed securities (ABS) and covered bonds does not lead banks with pre-existing issuance technology to originate more loans.  Our results suggest that the pass-through of asset purchase programs to lending conditions may occur through channels other than bank balance sheets.