Why gradual and predictable? Bank lending during the sharpest quantitative tightening ever

Lorenzo Burlon, Alessandro Ferrari, Stephen Kho and Nikoleta Tushteva

No 3010, Working Paper Series from European Central Bank

Abstract: Exploiting the recalibration of ECB’s outstanding central bank funding in 2022, we show that a sharp reabsorption of bank liquidity induces a tightening impact on credit supply, as intended when centralbanks reduce their balance sheets. The tightening originates from the sudden relative convenience for banks accustomed to large liquidity holdings to more rapidly adapt to the new environment. Moreover, we show that the associated reduction in credit supply has real economic effects. JEL Classification: E51, E52, G21

Keywords: banking; credit supply; liquidity; monetary policy; QT (search for similar items in EconPapers)
Date: 2025-01
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253010

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