Money Markets and Bank Lending: Evidence from the Tiering Adoption

59 Pages Posted: 6 Jun 2022 Last revised: 3 Mar 2023

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)

Multiple version iconThere are 2 versions of this paper

Date Written: March 3, 2023

Abstract

Exploiting the introduction of the ECB’s tiering system for remunerating excess reserve holdings, we document the importance of money market participation for bank lending. We show that the two-tier system encouraged banks to participate in the money market to obtain liquidity. This ultimately decreased money market fragmentation, allowing banks to ensure themselves against future liquidity shocks. We provide evidence that improved money market relationships reduce the precautionary behavior of financially constrained banks, which consequently extend more credit.

Keywords: money market; bank lending; 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 Tiering Adoption (March 3, 2023). Swedish House of Finance Research Paper, Forthcoming No. 22-17, Available at SSRN: https://ssrn.com/abstract=4115494 or http://dx.doi.org/10.2139/ssrn.4115494

Carlo Altavilla

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 (Contact Author)

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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