Excess Reserves and Monetary Policy Tightening

58 Pages Posted: 12 May 2023 Last revised: 1 Feb 2024

See all articles by Daniel Fricke

Daniel Fricke

Deutsche Bundesbank

Stefan Greppmair

Deutsche Bundesbank

Karol Paludkiewicz

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: April 28, 2023

Abstract

We show that the transmission of the European Central Bank's (ECB) recent monetary policy tightening differs across banks depending on their level of excess reserves. Specifically, the net worth of reserve-rich banks may display a boost when the interest rate paid on reserves increases strongly. Focusing on the ECB's 2022 rate hiking cycle, we show that reserve-rich banks' credit supply is less sensitive to the monetary policy tightening compared to other banks. The effect varies in the cross-section of both banks and firms. The results are binding at the firm level, indicating the presence of real effects.

Keywords: Interest rates, bank lending, excess liquidity, AnaCredit

JEL Classification: E43, E44, E52, G21

Suggested Citation

Fricke, Daniel and Greppmair, Stefan and Paludkiewicz, Karol, Excess Reserves and Monetary Policy Tightening (April 28, 2023). Available at SSRN: https://ssrn.com/abstract=4432543 or http://dx.doi.org/10.2139/ssrn.4432543

Daniel Fricke

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Stefan Greppmair (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Karol Paludkiewicz

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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