We study whether capital regulation shapes how quantitative easing (QE) reaches

borrowers. Comparing U.S. banks subject to post-crisis stress tests with other banks

during the Federal Reserve’s asset purchases, and using detailed loan-rate data, we find

that stress-tested banks cut mortgage rates more but raised consumer loan rates more.

Effects are largest for banks required to raise the most capital and those most exposed to

the Fed’s mortgage-backed security purchases. An estimated model shows that capital constrained banks favour mortgages—whose funding QE makes cheaper—at the expense

of consumer credit. Capital rules thus redirect monetary stimulus across credit markets.