Central Bank Liquidity Reallocation and Bank Lending: Evidence from the Tiering System

54 Pages Posted: 6 Jun 2022 Last revised: 11 Mar 2024

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 9, 2024

Abstract

We document that the reallocation of central bank reserves towards banks with higher liquidity needs fosters credit supply. Exploiting the ECB’s tiered reserve remuneration system for identification, we show that this system encouraged banks with low reserve holdings to obtain more reserves through the money market. Contextually, these banks reduced their securities holdings and extended more credit. We find no negative effects on the loan supply of banks with ex ante high reserves, which decreased their reserves holdings. Our results are not driven by banks’ exposures to other policy measures and highlight that the distribution of liquidity across banks is at least as important as the level of central bank liquidity.

Keywords: money market; excess reserves; 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, Central Bank Liquidity Reallocation and Bank Lending: Evidence from the Tiering System (March 9, 2024). 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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