Reserve holding and bank lending

Chun Kuang, Jiawen Yang and Wenyu Zhu

Journal of Empirical Finance, 2024, vol. 77, issue C

Abstract: Banks’ ability to convert liquidity into lending depends crucially on the various regulatory constraints they face. This paper investigates the differential lending responses of banks with varying levels of reserves, and their impact on the real economy. The distribution of reserves within the banking system became significantly more dispersed during the quantitative easing (QE) periods. Loan growth for those more liquidity-constrained does not vary meaningfully with liquidity changes, despite abundance at the aggregate level. Consequently, our findings imply that the uneven bank reserve distribution may exacerbate the spatial disparities in bank lending and regional economic development through differential lending responses of banks in different parts of the reserve distribution.

Keywords: Reserve holding; Bank lending; Quantitative easing; Reserve distribution (search for similar items in EconPapers)
JEL-codes: G20 G21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:77:y:2024:i:c:s0927539824000136

DOI: 10.1016/j.jempfin.2024.101478

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