What determines banks' excess demand for reserves?

Per Asberg-Sommar, Mathias Drehmann, Denise Hansson and Vatsala Shreeti

No 1376, BIS Working Papers from Bank for International Settlements

Abstract: What determines banks' demand for holding reserves at the central bank overnight? This has become a critical question for central banks that are shrinking their balance sheets. We exploit the unique operational framework in Sweden and quantify the factors that drive banks' demand to hold excess reserves at the central bank. Using granular data, we document significant fragmentation in interbank markets with a set of banks that never trade in interbank markets (inactive banks) and others that do (active banks). Active banks' excess reserves increase with their payment flow volatility and the cost of borrowing in interbank markets. Furthermore, excess reserve holdings shrink when aggregate interbank activity is high. Inactive banks' excess reserves also increase with their payment flow volatility but show greater persistence over time, underlining their passivity. Our findings not only shed light on the bank-level drivers of excess reserve demand but also on likely dynamics in untested demand-driven floors.

Keywords: excess reserves; reserve demand; interbank markets; demand-driven floor (search for similar items in EconPapers)
JEL-codes: E41 E52 E58 G21 (search for similar items in EconPapers)
Date: 2026-09
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bis.org/publ/work1376.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1376.htm (text/html)

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:bis:biswps:1376

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().