The impact of central bank liquidity support on banks’ balance sheets

Leo de Haan, Sarah Holton and Jan Willem End

No 2326, Working Paper Series from European Central Bank

Abstract: We empirically analyse the relationship between longer term central bank liquidity support and banks’ balance sheet ratios, using difference-in-differences panel regressions and propensity score matching on a large sample of banks in the euro area. The research question is whether the liquidity operations, which were introduced to prevent disorderly deleveraging, can also be linked to unintended changes in banks’ funding policies and asset allocations. The results show that unconditional and conditional refinancing operations are associated with different developments on banks’ balance sheets. Unconditional longer-term refinancing operations went together with higher maturity transformation by banks in stressed countries, and also more carry trades, i.e. banks borrowing more while increasing their holdings of government bonds. In contrast, refinancing operations that were conditional on banks’ lending were not associated with such carry trades, highlighting the benefits of conditionality attached to long-term refinancing operations. JEL Classification: E51, G21, G32

Keywords: banking; central bank liquidity; financial intermediation (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mon and nep-opm
Note: 2452262
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The impact of central bank liquidity support on banks’ sovereign exposures (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192326

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