Money Markets and Bank Lending: Evidence from the Adoption of Tiering

51 Pages Posted: 26 Feb 2022

See all articles by Carlo Altavilla

Carlo Altavilla

European Central Bank (ECB)

Miguel Boucinha

European Central Bank (ECB)

Lorenzo Burlon

European Central Bank (ECB)

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Julian Schumacher

European Central Bank (ECB)

Date Written: February 1, 2022

Abstract

Exploiting the introduction of the ECB’s tiering system for remunerating excess reserve holdings, we document the importance of access to the money market for bank lending. We show that the two-tier system produced positive wealth effects for banks with excess reserves and encouraged a reallocation of liquidity toward banks with unused exemptions. This ultimately decreased the fragmentation in the money market and enhanced the monetary policy transmission mechanism. The increased access to money market by banks with unused allowances incentivizes them to extend more credit than other banks, including banks with excess liquidity whose valuations increase the most.

Keywords: bank lending, Money market, negative interest rate policy

JEL Classification: G2, E5

Suggested Citation

Altavilla, Carlo and Boucinha, Miguel and Burlon, Lorenzo and Giannetti, Mariassunta and Schumacher, Julian, Money Markets and Bank Lending: Evidence from the Adoption of Tiering (February 1, 2022). ECB Working Paper No. 2022/2649, Available at SSRN: https://ssrn.com/abstract=4044233 or http://dx.doi.org/10.2139/ssrn.4044233

Carlo Altavilla (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Miguel Boucinha

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Lorenzo Burlon

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mariassunta Giannetti

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Julian Schumacher

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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