The Effects of Liquidity Regulation on Bank Demand in Monetary Policy Operations

38 Pages Posted: 28 Nov 2016  

Marcelo Rezende

Government of the United States of America - Board of Governors of the Federal Reserve System

Mary-Frances Styczynski

Board of Governors of the Federal Reserve System

Cindy M. Vojtech

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: 2016-10-24

Abstract

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 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

Rezende, Marcelo and Styczynski, Mary-Frances and Vojtech, Cindy M., The Effects of Liquidity Regulation on Bank Demand in Monetary Policy Operations (2016-10-24). FEDS Working Paper No. 2016-090. Available at SSRN: https://ssrn.com/abstract=2875205 or http://dx.doi.org/10.17016/FEDS.2016.090

Marcelo Rezende (Contact Author)

Government of the United States of America - Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Mary-Frances Styczynski

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Cindy M. Vojtech

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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