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The impact of banks’ liquidity reserves on lending

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  • Silvia Bressan

    (Free University of Bozen)

Abstract

The paper examines the impact from liquidity reserves on banks’ lending. Analysing a large sample of US banks, we discover that the lending of our firms is lower when they hoard liquidity in the form of cash, inter-bank deposits, or through transactions on federal funds. Further results reveal that the effect is stronger after the last quarter of 2008, namely after that the Federal Reserve started to pay interests on banks’ reserves. The paper contributes to the discussion around the implications on the credit to the real economy from central banks’ interventions of monetary policy and in particular from the discipline of reserves.

Suggested Citation

  • Silvia Bressan, 2018. "The impact of banks’ liquidity reserves on lending," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(4), pages 337-345, November.
    • Handle: RePEc:pal:jbkreg:v:19:y:2018:i:4:d:10.1057_s41261-018-0079-y
    DOI: 10.1057/s41261-018-0079-y
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    References listed on IDEAS

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    1. Stephen D. Williamson, 2016. "Interest Rate Control Is More Complicated Than You Thought," The Regional Economist, Federal Reserve Bank of St. Louis, issue April.
    2. Marvin Goodfriend, 2002. "Interest on reserves and monetary policy," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 77-84.
    3. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-260, July.
    4. Sumner Scott, 2009. "Comment on Brad Delong: Can We Generate Controlled Reflation in a Liquidity Trap?," The Economists' Voice, De Gruyter, vol. 6(4), pages 1-2, March.
    5. Michael Woodford, 2000. "Monetary Policy in a World Without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-260, July.
    6. Stephen D. Williamson, 2015. "Monetary Policy Normalization in the United States," Review, Federal Reserve Bank of St. Louis, vol. 97(2), pages 87-108.
    7. Dasgupta Swapan, 2009. "Comment on Luigi Zingales: Why not Consider Maximum Reserve Ratios?," The Economists' Voice, De Gruyter, vol. 6(4), pages 1-2, March.
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    Cited by:

    1. Ananou, Foly & Chronopoulos, Dimitris K. & Tarazi, Amine & Wilson, John O.S., 2021. "Liquidity regulation and bank lending," Journal of Corporate Finance, Elsevier, vol. 69(C).
    2. Retselisitsoe I. Thamae & Nicholas M. Odhiambo, 2022. "The impact of bank regulation on bank lending: a review of international literature," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(4), pages 405-418, December.

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    More about this item

    Keywords

    Banks; Reserves; Lending;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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