Liquidity dependencies in the euro area

Carla Soares

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: This study investigates to what extent the significant liquidity injections by the ECB over the past 15 years may have created a dependency by banks on central bank liquidity itself. Following Acharya et al. (2024), I examine whether the ECB’s liquidity provision changed banks’ incentives to increase liquid deposits, potentially heightening their susceptibility to liquidity shocks. Using both aggregate and bank-level data, I find that euro area banks tend to increase demand deposits and decrease time deposits with their holdings of excess reserves over the liquidity expansion phase and do not revert when aggregate liquidity starts to shrink. However, this is contained to specific periods, when interest rates were low and stable. The differences relative to the US could be related to distinct sources of liquidity and regulatory frameworks governing liquidity.

JEL-codes: E5 G21 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-eec and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bportugal.pt/system/files/documents/20 ... 5_1.pdf/WP202505.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w202505

Access Statistics for this paper

More papers in Working Papers from Banco de Portugal, Economics and Research Department Contact information at EDIRC.
Bibliographic data for series maintained by DEE-NTD ().