Money Markets and Bank Lending: Evidence from the Adoption of Tiering

Exploiting the introduction of the ECB’s tiering system for remunerating excess reserve holdings, we provide evidence on the importance of the smooth functioning of the money market for bank lending. We show that when the tiering was first discussed, but before its official announcement and implementation, bank valuations increased. Using unique transaction-level data for money market activity and bank lending, we then show that while equity prices suggest that the first unofficial announcement was credible, the positive effects of tiering on bank lending materialize only after the system was implemented and the money market reallocated excess liquidity. The transmission mechanism is enhanced for banks with excess exemptions, which regain access to the money market and extend more credit than other banks, rather than for banks with excess liquidity whose valuation increase most.

Date and time: 
Thursday 04 November 2021, 16:30
National Bank of Belgium, KU Leuven, UAntwerpen, UCLouvain, UGent, ULB, ULiège, UMons, UNamur, USaint-Louis, Vlerick and VUB.
Mariassunta Giannetti
Entrance fee: