The Effects of Liquidity Regulation on Bank Demand in Monetary Policy Operations
53 Pages Posted: 23 May 2016 Last revised: 24 Oct 2018
Date Written: October 12, 2018
We estimate the effects of the liquidity coverage ratio (LCR), a liquidity requirement for banks, on the tenders that banks submit in Term Deposit Facility operations, a Federal Reserve tool created to manage the quantity of central bank reserves. We identify these effects using variation in LCR requirements across banks and a change over time that allowed term deposits to count toward the LCR. Banks subject to the LCR submit tenders more often and submit larger tenders than exempt banks when term deposits qualify for the LCR. These results suggest that liquidity regulation affects bank demand in monetary policy operations.
Keywords: Liquidity Coverage Ratio, Term Deposit Facility, Monetary Policy, Excess Reserves, Basel III
JEL Classification: E52, E58, G21, G28
Suggested Citation: Suggested Citation