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The Effects of Liquidity Regulation on Bank Demand in Monetary Policy Operations

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  • Rezende, Marcelo
  • Styczynski, Mary-Frances
  • Vojtech, Cindy M.

Abstract

We estimate the effects of the liquidity coverage ratio (LCR), a liquidity requirement for banks, on the tenders that banks submit in Term Deposit Facility operations, a Federal Reserve tool created to manage the quantity of central bank reserves. We identify these effects using variation in LCR requirements across banks and a change over time that allowed term deposits to count toward the LCR. Banks subject to the LCR submit tenders more often and submit larger tenders than exempt banks when term deposits qualify for the LCR. These results suggest that liquidity regulation affects bank demand in monetary policy operations.

Suggested Citation

  • Rezende, Marcelo & Styczynski, Mary-Frances & Vojtech, Cindy M., 2021. "The Effects of Liquidity Regulation on Bank Demand in Monetary Policy Operations," Journal of Financial Intermediation, Elsevier, vol. 46(C).
    • Handle: RePEc:eee:jfinin:v:46:y:2021:i:c:s1042957320300140
    DOI: 10.1016/j.jfi.2020.100860
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    Cited by:

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    3. Li, Boyao, 2021. "Bank equity, interest payments, and credit creation under Basel III regulations," MPRA Paper 111269, University Library of Munich, Germany.
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    6. Li, Boyao, 2024. "A balance sheet analysis of monetary policy effects on banks," MPRA Paper 120882, University Library of Munich, Germany.
    7. Li, Boyao, 2022. "How does bank equity affect credit creation? Multiplier effects under Basel III regulations," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 299-324.

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    More about this item

    Keywords

    Liquidity Coverage Ratio; Term Deposit Facility; Monetary Policy; Excess Reserves; Basel III;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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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