Banque centrale du Luxembourg 01/12/2018 Discussion of K. Paludkiewicz: Uncoventional Monetary Policy, Bank Lending, and Security Holdings: The Yield-Induced Portfolio Rebalancing Channel Ladislav Wintr Banque centrale du Luxembourg Brussels 2 February 2018 The views expressed are those of the discussant, and should not be taken to represent the views of the BCL or the Eurosystem.

Main hypotheses and findings Overview Observation Following the Eurosystem’s non-standard measures (NSM), the yield on securities portfolios of German banks declined stronger than interest rates on newly issued loans. Research question As a result, did German banks rebalance from security holdings into new lending? Main hypotheses and findings The larger the decline in the yield of a bank’s portfolio, the larger the increase in its lending  to the NFPS and the larger the decline in its securities holdings, especially those leading to the highest valuation gains. The impact of the yield decline on bank lending is stronger for banks holding relatively more maturing securities, banks with larger securities portfolio and weakly capitalized banks. L. Wintr: Discussion of Unconventional Monetary Policy, Bank Lending, and Security Holdings 2/8

Richer dataset allows for Literature Albertazzi et al. (2016): the Asset Purchase Programme (APP) increased banks’ lending growth to NFCs in less vulnerable countries. Richer dataset allows for better identification of the monetary policy induced yield decline and control for liquidity-driven transmission channel, identification of channels through which the yield decline affects bank lending. Albertazzi, Becker, Boucinha (2016) Paludkiewicz (2018) 25 largest euro area banking groups holdings of individual securities centralized securities database loans and interest rate statistics   204 German banks interest rate statistics (new loans) balance sheet and income statements refinancing operations (TLTRO uptakes) L. Wintr: Discussion of Unconventional Monetary Policy, Bank Lending, and Security Holdings 3/8

Unique dataset with broad coverage of individual bank information. Comments Unique dataset with broad coverage of individual bank information. Convincing evidence that German banks experiencing larger decline of yield of their securities portfolio increased more their lending and reduced more their securities holdings, in particular high-gain securities. Comments BLS perspective Impact of Eurosystem’s NSMs on bank lending rates Empirical Specification “MP shock” definition L. Wintr: Discussion of Unconventional Monetary Policy, Bank Lending, and Security Holdings 4/8

Comments – BLS perspective Most German BLS banks reported no impact of the APP. Little support for the argument of “stealth recapitalization”. 19 banks reported negative impact on profitability in at least 1 BLS wave (scope for portfolio-rebalancing). Notes: 27 German iBLS banks 3 waves: 2015q3, 2015q9, 2016q3 L. Wintr: Discussion of Unconventional Monetary Policy, Bank Lending, and Security Holdings 5/8

Comments – Impact on lending rates Did banks experiencing a larger decline in yield lower their lending rates more (to increase lending)? NB: Albertazzi et al. (2016) found such effect for loans to HHDs but converse for loans to NFCs. L. Wintr: Discussion of Unconventional Monetary Policy, Bank Lending, and Security Holdings 6/8

Comments – Empirical specification Controlling explicitly for conventional monetary policy changes in bank lending model (2) beyond the net interest margin. Average MRO rate: 0.6% in 2013 and 0.05% in 2015. TLTRO take-up in the baseline specification of model (2)? Models (1) and (2) are estimated separately for different categories (sectors, low/high maturing assets, equity ratio etc.). Estimation with interaction dummies would increase the degrees of freedom and may facilitate presentation of the results and significance tests. Heterogeneity in the impact on lending and asset holdings across the 5 bank types considered. Results suggest that banks target a specific yield level. Can this be estimated? L. Wintr: Discussion of Unconventional Monetary Policy, Bank Lending, and Security Holdings 7/8

Comments – “MP shock” “MP shock” definition “MP shock” (the impact of NSM on banks’ portfolio yield) is calculated from the observed yield decline. Using the results in Altavilla et al. (2015) on the heterogeneous impact of the APP on different asset classes, one could capture more precisely the impact of the APP on yields. L. Wintr: Discussion of Unconventional Monetary Policy, Bank Lending, and Security Holdings 8/8