Reserve Requirements, Liquidity Risk, and Bank Lending Behavior

Koray Alper, Mahir Binici, Selva Demiralp, Hakan Kara and Pınar Özbay Özlü

Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum

Abstract: Although reserve requirements have been used in emerging markets to smooth credit cycles, the exact transmission mechanism remains to be explored. Using bank level data, this study looks inside the black-box to unveil the interaction of reserve requirement policy with bank lending. We identify a new channel that works through a decline in bank liquidity and loan supply due to an increase in reserve requirements. We show that “quantitative tightening” through reserve requirements affect the funding needs and the liquidity position of the banking system. The consequent changes in bank liquidity have a significant impact on the bank lending behavior.

Keywords: Monetary transmission mechanism; liquidity channel; reserve requirements; Turkey. (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2016-11
New Economics Papers: this item is included in nep-ara, nep-ban, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Reserve Requirements, Liquidity Risk, and Bank Lending Behavior (2018)
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