Nº 19-72: The Asset Reallocation Channel of Quantitative Easing. The Case of the UK

We investigate the impact of the Bank of England’s asset purchase program (APP) on the composition of assets of UK banks with unique data on the received reserves injections. Compared to the control group, receiving banks reallocated their assets towards lower riskweighted investments, such as government securities, but did not supply more credit to the real economy. Overall, our findings suggest that risk-based capital constraints can limit the effectiveness of expansionary unconventional monetary policies and provide incentives for carry trade activities when banks are not adequately capitalised.