Bank Lending Channel Effectiveness and Loan Sales in the US

Document Type

Article

Publication Date

2014

Abstract

This paper examines whether banks that sell loans in the secondary market respond differently to a monetary policy innovation from those that do not engage in loan sales. We answer this question by measuring the policy response while controlling for loan sales activities. Using a simple theoretical model and U.S. bank-level Call Report longitudinal data for the period 1991Q1-2008 Q4, we conduct a dynamic panel regression analysis. We find that the long-run response to a typical policy shock is three times greater for mid- size banks engaging in loan sales. Given the increase in proportion of banks engaging in loan sales, this finding has strong implications for policy makers and bank industry volatility.

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