The Effect of Central Bank Liquidity Injections on Bank Credit Supply
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.
File(s): File format is application/pdf https://www.federalreserve.gov/econres/feds/files/2017038pap.pdf
Part of Series: Finance and Economics Discussion Series
Publication Date: 2017-03
Pages: 58 pages