Important evidence on an important topic from my friend Gabe Chodorow-Reich:
Unconventional monetary policy affects financial institutions through their expo- sure to real project risk, the value of their legacy assets, their temptation to reach for yield, and their choice of leverage. I use high frequency event studies to show the introduction of unconventional policy in the winter of 2008-09 had a strong, beneficial impact on banks and especially on life insurance companies, consistent with the pos- itive effect on legacy asset prices dominating any impulse for additional risk taking. Subsequent policy announcements had minor effects on these institutions. The interaction of low nominal interest rates and administrative costs led money market funds to waive fees, producing a possible incentive to reach for higher returns to reduce waivers. I find some evidence of high cost money market funds reaching for yield in 2009-11, but little thereafter. Private defined benefit pension funds with worse fund- ing status or shorter liability duration also seem to have reached for higher returns beginning in 2009, but again the evidence suggests such behavior dissipated by 2012. Overall, in the present environment there does not seem to be a trade-off between expansionary policy and the health or stability of the financial institutions studied.