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Why gradual and predictable? Bank lending during the sharpest quantitative tightening ever

Author

Listed:
  • Burlon, Lorenzo
  • Ferrari, Alessandro
  • Kho, Stephen
  • Tushteva, Nikoleta

Abstract

Exploiting the recalibration of ECB’s outstanding central bank funding in 2022, we show that a sharp reabsorption of bank liquidity induces a tightening impact on credit supply, as intended when centralbanks reduce their balance sheets. The tightening originates from the sudden relative convenience for banks accustomed to large liquidity holdings to more rapidly adapt to the new environment. Moreover, we show that the associated reduction in credit supply has real economic effects. JEL Classification: E51, E52, G21

Suggested Citation

  • Burlon, Lorenzo & Ferrari, Alessandro & Kho, Stephen & Tushteva, Nikoleta, 2025. "Why gradual and predictable? Bank lending during the sharpest quantitative tightening ever," Working Paper Series 3010, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20253010
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    More about this item

    Keywords

    banking; credit supply; liquidity; monetary policy; QT;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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