Reserve Requirements, Liquidity Risk, and Bank Lending Behavior

Koray Alper, Mahir Binici, Selva Demiralp, Hakan Kara and Pınar Özbay Özlü

Journal of Money, Credit and Banking, 2018, vol. 50, issue 4, 817-827

Abstract: Although reserve requirements (RR) have been used in emerging markets to smooth credit cycles, the transmission mechanism remains blurry. Using bank‐level data, we unveil the interaction of RR with bank lending. We identify a new channel that works through a decline in banks’ liquid assets and loan supply due to an increase in RR. “Quantitative tightening” through RR raises the short‐term funding needs of the banking system, which is met by collateralized central bank lending, thus depleting banks’ unencumbered liquid assets. Our results suggest that such a shift in bank liquidity is associated with a significant change in lending.

Date: 2018
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Citations: View citations in EconPapers (13)

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https://doi.org/10.1111/jmcb.12475

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Working Paper: Reserve Requirements, Liquidity Risk, and Bank Lending Behavior (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:50:y:2018:i:4:p:817-827

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