Liquidity dependencies in the euro area

Carla Soares

No 3056, Working Paper Series from European Central Bank

Abstract: This study investigates to what extent the significant liquidity injections by the ECB over the past 15 years may have created a dependency by banks on central bank liquidity itself. Following Acharya et al. (2024), I examine whether the ECB's liquidity provision changed banks' incentives to increase liquid deposits, potentially heightening their susceptibility to liquidity shocks. Using both aggregate and bank-level data, I find that euro area banks tend to increase demand deposits and decrease time deposits with their holdings of excess reserves over the liquidity expansion phase and do not revert when aggregate liquidity starts to shrink. However, this is contained to specific periods, when interest rates were low and stable. The differences relative to the US could be related to distinct sources of liquidity and regulatory frameworks governing liquidity. JEL Classification: E5, G21

Keywords: central bank liquidity; deposits; euro area; monetary policy (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp3056~6505619498.en.pdf (application/pdf)

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:ecb:ecbwps:20253056

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().