The Effect of Central Bank Liquidity Injections on Bank Credit Supply

56 Pages Posted: 9 Mar 2017 Last revised: 16 Jan 2018

See all articles by Luisa Carpinelli

Luisa Carpinelli

Bank of Italy

Matteo Crosignani

University of Michigan at Ann Arbor - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 15, 2018

Abstract

We analyze central bank provisions of collateralized liquidity to banks following a wholesale funding dry-up. Combining rm-level data from the Italian loan credit registry with supervisory data on security-level holdings, we examine the European Central Bank’s three-year Long Term Refinancing Operations. We find that (i) long-term, but not short-term, central bank liquidity helped banks hit by the dry-up restore their credit supply to firms; (ii) banks used most liquidity to buy government bonds; and (iii) a government guarantee, by granting banks hit by the dry-up access to central bank liquidity, was necessary for the transmission of liquidity to firms.

Keywords: Central Bank Liquidity, Wholesale Funding, Bank Credit, Government Bonds, Government Guarantees

JEL Classification: E50, E58, G21, H63

Suggested Citation

Carpinelli, Luisa and Crosignani, Matteo, The Effect of Central Bank Liquidity Injections on Bank Credit Supply (January 15, 2018). Available at SSRN: https://ssrn.com/abstract=2930063 or http://dx.doi.org/10.2139/ssrn.2930063

Luisa Carpinelli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Matteo Crosignani (Contact Author)

University of Michigan at Ann Arbor - Finance ( email )

701 Tappan Street
Ann Arbor, MI 48109-1234
United States

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