Central bank liquidity reallocation and bank lending: Evidence from the tiering system
Year: 2025
Type: article
Abstract: We document that the reallocation of central bank reserves towards banks with higher liquidity needs fosters credit supply. Exploiting the ECB's tiered reserve remuneration system for identification, we show that this system encouraged banks with low reserve holdings to obtain more reserves through the money market. Concomitantly, these banks reduced their securities holdings and extended more credit. We estimate that the reallocation of one euro of reserves towards banks with ex ante low reserve holdings resulted in an increase in credit supply of about 15 cents.
Source: Journal of Financial Economics
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,740
Funders: New York University, Jan Wallanders och Tom Hedelius Stiftelse samt Tore Browaldhs Stiftelse, British Interplanetary Society, Université du Luxembourg, Asian Finance Association, University of Southampton, École Polytechnique Fédérale de Lausanne, Riksbankens Jubileumsfond, Higher Education Commission, Pakistan, Banco de Portugal, Nationale Bank van België
OpenAlex ID: W4409190728