How do banks manage liquidity? Evidence from the ECB’s tiering experiment
Florian Heider (),
Jean-David Sigaux and
Olivier Vergote ()
No 2732, Working Paper Series from European Central Bank
We study how banks manage their liquidity among the various assets at their disposal. We exploit the introduction of the ECB’s two-tier system which heterogeneously reduced the cost of additional reserves holdings. We find that the treated banks increase reserve holdings by borrowing on the interbank market, decreasing lending to affiliates of the same group, and selling marketable securities. We also find that banks have a preference for a stable portfolio composition of liquid assets over time. Our results imply that frictions in one market for liquidity can spill over to several markets. JEL Classification: G21, G11, E52
Keywords: bank liquidity; central bank reserves; government bonds; monetary policy implementation; money markets (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222732
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