The Effect of Central Bank Liquidity Injections on Bank Credit Supply

59 Pages Posted: 10 Apr 2017 Last revised: 11 Apr 2017

See all articles by Luisa Carpinelli

Luisa Carpinelli

Bank of Italy

Matteo Crosignani

Federal Reserve Banks - Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: March, 2017

Abstract

We study the effectiveness of central bank liquidity injections in restoring bank credit supply following a wholesale funding dry-up. We combine borrower-level data from the Italian credit registry with bank security-level holdings and analyze the transmission of the European Central Bank three-year Long Term Refinancing Operation. Exploiting a regulatory change that expands eligible collateral, we show that banks more affected by the dry-up use this facility to restore their credit supply, while less affected banks use it to increase their holdings of high-yield government bonds. Unable to switch from affected banks during the dry-up, firms benefit from the intervention.

Keywords: Bank Credit Supply, Bank Wholesale Funding, Lender of Last Resort, Unconventional Monetary Policy

JEL Classification: E50, E58, G21, H63

Suggested Citation

Carpinelli, Luisa and Crosignani, Matteo, The Effect of Central Bank Liquidity Injections on Bank Credit Supply (March, 2017). FEDS Working Paper No. 2017-38, Available at SSRN: https://ssrn.com/abstract=2949244 or http://dx.doi.org/10.17016/FEDS.2017.038

Luisa Carpinelli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Matteo Crosignani

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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