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Central bank liquidity reallocation and bank lending: Evidence from the tiering system

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  • Altavilla, Carlo
  • Boucinha, Miguel
  • Burlon, Lorenzo
  • Giannetti, Mariassunta
  • Schumacher, Julian

Abstract

We document that the reallocation of central bank reserves towards banks with higher liquidity needs fosters credit supply. Exploiting the ECB's tiered reserve remuneration system for identification, we show that this system encouraged banks with low reserve holdings to obtain more reserves through the money market. Concomitantly, these banks reduced their securities holdings and extended more credit. We estimate that the reallocation of one euro of reserves towards banks with ex ante low reserve holdings resulted in an increase in credit supply of about 15 cents.

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  • Altavilla, Carlo & Boucinha, Miguel & Burlon, Lorenzo & Giannetti, Mariassunta & Schumacher, Julian, 2025. "Central bank liquidity reallocation and bank lending: Evidence from the tiering system," Journal of Financial Economics, Elsevier, vol. 168(C).
    • Handle: RePEc:eee:jfinec:v:168:y:2025:i:c:s0304405x25000662
    DOI: 10.1016/j.jfineco.2025.104058
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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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