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The design and transmission of central bank liquidity provisions

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  • Carpinelli, Luisa
  • Crosignani, Matteo

Abstract

We analyze the role of loan maturity and collateral eligibility in the transmission of central bank liquidity provisions to banks following a wholesale funding dry-up. We analyze the transmission of the three-year LTRO, which substantially extended the ECB liquidity maturity, in Italy, where banks benefited from a government guarantee program that effectively relaxed the ECB collateral requirements. Combining the national credit register with banks securities holdings, we find that (i) the maturity extension supported banks’ credit supply and (ii) banks used most liquidity to buy domestic government bonds and substitute missing wholesale funding, two possibly unstated goals of the intervention.

Suggested Citation

  • Carpinelli, Luisa & Crosignani, Matteo, 2021. "The design and transmission of central bank liquidity provisions," Journal of Financial Economics, Elsevier, vol. 141(1), pages 27-47.
  • Handle: RePEc:eee:jfinec:v:141:y:2021:i:1:p:27-47
    DOI: 10.1016/j.jfineco.2020.06.025
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    14. Laine, Olli-Matti, 2022. "Evidence about the transmission of monetary policy," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number e53.
    15. Antonis Kotidis & Dimitris Malliaropulos & Elias Papaioannou, 2022. "Public and private liquidity during crises times: evidence from Emergency Liquidity Assistance (ELA) to Greek banks," Working Papers 304, Bank of Greece.
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    23. Tom Beernaert & Nicolas Soenen & Rudi Vander Vennet, 2022. "ECB Monetary Policy and the Term Structure of Bank Default Risk," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 22/1050, Ghent University, Faculty of Economics and Business Administration.
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    More about this item

    Keywords

    Central bank liquidity; Wholesale funding dry-ups; Short-term funding; Central bank collateral;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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