Money Markets and Bank Lending: Evidence from the Tiering Adoption


Event details

Date 24.02.2023
Hour 10:3012:00
Speaker Mariassunta Giannetti - Stockholm School of Economics
UniL Campus, Room Extra 126
Category Conferences - Seminars
Event Language English

Exploiting the introduction of the ECB’s tiering system for remunerating excess reserve holdings, we document the importance of money market participation for bank lending. We show that the two-tier system encouraged banks with unused exemptions to participate in the money market to obtain liquidity. This ultimately decreased money market fragmentation, allowing banks to ensure future liquidity shocks. We provide evidence that stronger money market relationships reduce the precautionary behavior of financially constrained banks with unused allowances, which consequently extend more credit than other banks.