Working Paper

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

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 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.

Keywords: Liquidity Coverage Ratio; Term Deposit Facility; Monetary Policy; Excess Reserves; Basel III;

JEL Classification: E52; E58; G21; G28;

https://doi.org/10.17016/FEDS.2016.090

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2016-10-24

Number: 2016-090

Pages: 36 pages