The impact of central bank liquidity support on banks' balance sheets

Arbeitspapier

We empirically analyse the relationship between longer term central bank liquidity support and banks' balance sheet ratios, using difference-in-differences panel regressions and propensity score matching on a large sample of banks in the euro area. The research question is whether the liquidity operations, which were introduced to prevent disorderly deleveraging, can also be linked to unintended changes in banks' funding policies and asset allocations. The results show that unconditional and conditional refinancing operations are associated with different developments on banks' balance sheets. Unconditional longer-term refinancing operations went together with higher maturity transformation by banks in stressed countries, and also more carry trades, i.e. banks borrowing more while increasing their holdings of government bonds. In contrast, refinancing operations that were conditional on banks' lending were not associated with such carry trades, highlighting the benefits of conditionality attached to long-term refinancing operations.

Object Details

• ISBN: 978-92-899-3895-2
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2326

Classification and Topics

• Classification: Wirtschaft ; Money Supply; Credit; Money Multipliers ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: central bank liquidity ; banking ; financial intermediation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): de Haan, Leo ; Holton, Sarah ; van den End, Jan-Willem
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2019

Further information

• DOI: doi:10.2866/15373
• Handle: http://hdl.handle.net/10419/208360
• Last update: 10.03.2025, 11:41 AM CET