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The impact of monetary policy instrument innovation on commercial banks' liquidity creation

Author

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  • Zhang, Xuedong
  • Li, Jinwei

Abstract

This paper delves into the effects of innovative monetary policy instruments on the liquidity creation capabilities of listed commercial banks, utilizing comprehensive data spanning the years 2014 to 2022. The research uncovers a significant insight: lending facility tools have a positive impact on enhancing the ability of commercial banks to generate liquidity. Furthermore, the provision coverage ratio emerges as a partial mediator in this process, influencing how effectively these tools translate into increased liquidity creation by the banks. This revelation adds depth to our understanding of the intricate relationship between monetary policy and banking liquidity.

Suggested Citation

  • Zhang, Xuedong & Li, Jinwei, 2025. "The impact of monetary policy instrument innovation on commercial banks' liquidity creation," Finance Research Letters, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324016519
    DOI: 10.1016/j.frl.2024.106622
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