We empirically assess the effect of reserve accumulation as a result of quantitative easing (QE) on bank-level lending … and risk taking activity. To overcome the endogeneity of bank-level reserve holdings to banks' other portfolio decisions …

costly state verification (CSV) problem by introducing a risk-neutral monopolistic bank, which maximizes profits subject to … borrower participation. While the bank can diversify idiosyncratic default risk, it bears the aggregate risk. We show that, in … partial equilibrium, the bank prefers a higher leverage ratio of borrowers, when the profitability of lending increases, e …