Document Type


Publication Date

January 2018


This paper presents a study of the effectiveness of monetary policy on financialintermediation. Specifically, I aim to determine how commercial banks responded, viacommercial lending, to the trillions of dollars of policy innovations to stimulate the creditmarkets during the 2008 global financial crisis. To that end, I compare the change incommercial lending by United States-based commercial banks during the stimulus period ofOctober 1, 2007 through September 30, 2011 to that activity in the earlier non-stimulus periodof October 1, 2002 through September 30, 2006. After comparing 1,977 commercial loans inthe stimulus period and 1,844 loans in the non-stimulus period, I find that commerciallending by commercial banks that lent during both periods increased by $235 billion more inthe stimulus period than in the non-stimulus period.Two reasons support this increase in financial intermediation. First, the regressionanalysis shows a significant impact of the monetary policy-driven credit stimuli on theincrease in commercial lending for five of the six credit stimuli in which the lendingcommercial banks participated. Second, the event-study results reflect positive andsignificant market reaction to the participation of the banks in the credit stimuli policies,which appears to have encouraged the banks to borrow so that they could lend. Thesefindings that commercial lending increased and that such an increase can be attributed to thebanks’ participation in monetary policy credit stimuli bring key new contributions to thefinancial literature. It appears that U.S.-based commercial banks responded positively to thecredit stimuli.JEL classification: G21, G28, E52, E58