Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229129
Authors: 
Kedan, Danielle
Ventula Veghazy, Alexia
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2515
Abstract: 
We analyse the impact of the Liquidity Coverage Ratio (LCR) on the demand for central bank reserves in the euro area with difference-in-differences estimation techniques. Using a novel dataset and an identification strategy that exploits the cross-country heterogeneity in the regulatory treatment of reserves for LCR purposes prior to the announcement of a harmonised euro area standard as a quasinatural experiment, we find evidence that points to LCR-induced demand for reserves. Specifically, our results suggest that banks with low LCRs relative to peers increased their central bank reserve holdings as a result of the LCR regulation. Our findings have economically meaningful implications for the operational framework of monetary policy and imply that the Eurosystem's balance sheet may need to remain larger than it was prior to the financial crisis and the associated introduction of new liquidity regulation.
Subjects: 
Basel III
Liquidity Coverage Ratio
monetary policy
central bank operational framework
ECB
JEL: 
C23
E52
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4515-8
Document Type: 
Working Paper

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