The asset reallocation channel of quantitative easing. The case of the UK

<p> 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. The <a href="https://www.sciencedirect.com/topics/economics-econometrics-and-finance/monetary-policy" target="_blank">Monetary Policy</a> Committee (MPC) didn’t expect there to be strong transmission of the APP’s impact through the <a href="https://www.sciencedirect.com/topics/economics-econometrics-and-finance/monetary-transmission" target="_blank">bank lending channel</a>. We find that compared to the control group, treated banks reallocated their assets towards lower risk-weighted investments, such as government securities, but did not provide more credit to the real economy. Overall, our findings suggest that when banks are not adequately capitalised, risk-based capital constraints can limit the effectiveness of expansionary <a href="https://www.sciencedirect.com/topics/economics-econometrics-and-finance/unconventional-monetary-policy" target="_blank">unconventional monetary policies</a> and provide incentives for carry trade activities. </p>