Standing lending facility in interbank market: Evidence from China

Tiantao Guo, Yan Wang and Wanzhu Zhang

PLOS ONE, 2023, vol. 18, issue 5, 1-18

Abstract: We observe an anomaly that SLF quantity expansion is often accompanied by higher interbank market rates. With the Shibor bid panel, this paper empirically shows that SLF easing encourages bank risk-taking activity, and amplifies bank liquidity demand. The induced demand dominates the liquidity supply effect and leads to higher interbank rates. Moreover, the risk-taking behavior of state-owned banks is more sensitive to SLF than that of non-state-owned banks. These features make SLF a better expectation management tool than a price-based or quantity-based tool for interbank market liquidity management.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0284470

DOI: 10.1371/journal.pone.0284470

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