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Reserve holding and bank lending

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  • Kuang, Chun
  • Yang, Jiawen
  • Zhu, Wenyu

Abstract

Banks’ ability to convert liquidity into lending depends crucially on the various regulatory constraints they face. This paper investigates the differential lending responses of banks with varying levels of reserves, and their impact on the real economy. The distribution of reserves within the banking system became significantly more dispersed during the quantitative easing (QE) periods. Loan growth for those more liquidity-constrained does not vary meaningfully with liquidity changes, despite abundance at the aggregate level. Consequently, our findings imply that the uneven bank reserve distribution may exacerbate the spatial disparities in bank lending and regional economic development through differential lending responses of banks in different parts of the reserve distribution.

Suggested Citation

  • Kuang, Chun & Yang, Jiawen & Zhu, Wenyu, 2024. "Reserve holding and bank lending," Journal of Empirical Finance, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:empfin:v:77:y:2024:i:c:s0927539824000136
    DOI: 10.1016/j.jempfin.2024.101478
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    More about this item

    Keywords

    Reserve holding; Bank lending; Quantitative easing; Reserve distribution;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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