Monetary Stimulus and Bank Lending

The U.S. Federal Reserve purchased both agency mortgage-backed securities (MBS) and Treasury securities to conduct quantitative easing (QE). Using micro-level data, we find that banks benefiting from MBS purchases increase mortgage origination, compared to other banks. At the same time, these banks reduce commercial lending and firms that borrow from these banks decrease investment. The effect of Treasury purchases is different: either positive or insignificant in most cases. Our results suggest that MBS purchases caused unintended real effects and that Treasury purchases did not cause a large positive stimulus to the economy through the bank lending channel.