Money markets and bank lending: evidence from the adoption of tiering

Carlo Altavilla, Miguel Boucinha, Lorenzo Burlon, Mariassunta Giannetti and Julian Schumacher

No 2649, Working Paper Series from European Central Bank

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. JEL Classification: G2, E5

Keywords: bank lending; Money market; negative interest rate policy (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-isf, nep-mac and nep-mon
Note: 2279334
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Citations: View citations in EconPapers (5)

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