The Effect of Central Bank Liquidity Injections on Bank Credit Supply
59 Pages Posted: 10 Apr 2017
Date Written: 2017-03
We study the effectiveness of central bank liquidity injections in restoring bank credit supply following a wholesale funding dry-up. We combine borrower-level data from the Italian credit registry with bank security-level holdings and analyze the transmission of the European Central Bank three-year Long Term Refinancing Operation. Exploiting a regulatory change that expands eligible collateral, we show that banks more affected by the dry-up use this facility to restore their credit supply, while less affected banks use it to increase their holdings of high-yield government bonds. Unable to switch from affected banks during the dry-up, firms benefit from the intervention.
Keywords: Bank Credit Supply, Bank Wholesale Funding, Lender of Last Resort, Unconventional Monetary Policy
JEL Classification: E50, E58, G21, H63
Suggested Citation: Suggested Citation