What is the effect of unconventional monetary policy on bank performance?

•We examine the relationship between unconventional monetary policy (UMP) and the performance of US banks.•The performance of banks of high level of asset diversification and low deposit funding is less negatively affected by UMP.•We observe that the negative association between UMP and bank performance subdues for deposit insured institutions.•The negative relationship between UMP and performance is enhanced above an identified threshold value of UMP.

This paper examines the relationship between unconventional monetary policy and the US banking performance. Unconventional monetary policy is captured through the central bank's assets and excess reserves. Results show that unconventional monetary policy has a negative relationship with bank performance. Further analysis shows that the negative association between unconventional monetary policy and performance is mitigated for banks with a high level of asset diversification and low deposit funding. We also find that the negative relationship between unconventional monetary policy and performance subdues for deposit insured financial institutions. Finally, we use dynamic panel threshold analysis which reveals that the negative association between unconventional monetary policy and bank performance is particularly pronounced above the reported threshold value.