Central bank liquidity reallocation and bank lending: Evidence from the tiering system

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

Journal of Financial Economics, 2025, vol. 168, issue C

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. Concomitantly, these banks reduced their securities holdings and extended more credit. We estimate that the reallocation of one euro of reserves towards banks with ex ante low reserve holdings resulted in an increase in credit supply of about 15 cents.

Keywords: Money market; Excess reserves; Transmission mechanism; Bank lending; Negative interest rate policy (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:168:y:2025:i:c:s0304405x25000662

DOI: 10.1016/j.jfineco.2025.104058

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