The impact of quantitative easing on liquidity creation

• We study the impact of Fed’s three rounds QE on bank liquidity creation. Banks create by financing illiquid assets with liquid liabilities. use a sample US banks over 2006-14 and difference-in-difference methodology. more exposed to increased lending during first third round QE. Liquidity creation among treated was higher only last effects Federal Reserve’s large-scale asset purchase programs 2008–2014 when they transform reserves resulted from quantitative easing (QE) into assets. As composition banks’ loan portfolio affects amount it creates, is not priori clear. Using identification strategy, we find that affected policy relative those less affected, mainly However, strong effect This points weaker real economy two rounds, transformed created through assets, such as estate mortgages.