The Effects of Liquidity Regulation on Bank Demand in Monetary Policy Operations

Marcelo Rezende, Mary-Frances Styczynski and Cindy M. Vojtech

Journal of Financial Intermediation, 2021, vol. 46, issue C

Abstract: We estimate the effects of the liquidity coverage ratio (LCR), a liquidity requirement for banks, on the tenders that banks submit in Term Deposit Facility operations, a Federal Reserve tool created to manage the quantity of central bank reserves. We identify these effects using variation in LCR requirements across banks and a change over time that allowed term deposits to count toward the LCR. Banks subject to the LCR submit tenders more often and submit larger tenders than exempt banks when term deposits qualify for the LCR. These results suggest that liquidity regulation affects bank demand in monetary policy operations.

Keywords: Liquidity Coverage Ratio; Term Deposit Facility; Monetary Policy; Excess Reserves; Basel III (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:46:y:2021:i:c:s1042957320300140

DOI: 10.1016/j.jfi.2020.100860

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