The Effect of Central Bank Liquidity Injections on Bank Credit Supply
Luisa Carpinelli and
Matteo Crosignani ()
No 2017-038, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)
We study the effectiveness of central bank liquidity injections in restoring bank credit supply following a wholesale funding dry-up. We combine borrower-level data from the Italian credit registry with bank security-level holdings and analyze the transmission of the European Central Bank three-year Long Term Refinancing Operation. Exploiting a regulatory change that expands eligible collateral, we show that banks more affected by the dry-up use this facility to restore their credit supply, while less affected banks use it to increase their holdings of high-yield government bonds. Unable to switch from affected banks during the dry-up, firms benefit from the intervention.
Keywords: Bank Credit Supply; Bank Wholesale Funding; Lender of Last Resort; Unconventional Monetary Policy (search for similar items in EconPapers)
JEL-codes: E50 E58 G21 H63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
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