Money Markets and Bank Lending: Evidence from the Tiering Adoption

Carlo Altavilla, Miguel Boucinha, Lorenzo Burlon, Mariassunta Giannetti and Julian Schumacher

No 17337, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Exploiting the introduction of the ECB’s tiering system for remunerating excess reserve holdings, we document the importance of the access to the money market for bank lending. We show that the two-tier system produced positive wealth effects for banks with excess reserves and encouraged a reallocation of liquidity toward banks with unused exemptions. This ultimately decreased the fragmentation in the money market and enhanced the transmission of monetary policy. Improved money market access incentivizes banks with unused allowances to extend more credit than other banks, including banks with excess liquidity whose valuations increased the most.

Keywords: Money market; Bank lending; Negative interest rate policy (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2022-05
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