Excess reserves and the implementation of monetary policy of the ECB

Bindseil, Ulrich; Camba-Méndez, Gonzalo; Hirsch, Astrid; Weller, Benedict

doi:10.1016/j.jpolmod.2006.02.006

Cited by 32 publications

(23 citation statements)

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“…Later contributions to this literature include Nautz (), Bindseil et al. (), Whitesell (), Lee (), and Bech and Keister (). The framework presented in this paper is closest to Bech and Keister ().…”

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confidence: 99%

Monetary Policy Transmission with Interbank Market Fragmentation

Vari¹

2019

J of Money Credit Banking

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This paper shows how interbank market fragmentation disrupts the transmission of monetary policy. Fragmentation is the fact that banks, depending on their country of location, have different probabilities of default on their interbank borrowings. Once fragmentation is introduced into standard theoretical models of monetary policy implementation, excess liquidity arises endogenously. This leads short‐term interest rates to depart from the central bank policy rates. Using data on monetary policy operations, I show that this mechanism has been at work in the euro area since 2008. The model is used to analyze conventional and unconventional monetary policy measures.

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confidence: 99%

Monetary Policy Transmission with Interbank Market Fragmentation

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2019

J of Money Credit Banking

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“…For the role of excess reserves in the implementation of monetary policy in the euro area see Bindseil et al . (), for the framework for monetary policy implementation in the euro area, the UK and the US see ECB (), Wetherilt () and Edwards (), respectively.…”

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confidence: 99%

The Impact of the Liquidity Coverage Ratio (LCR) on the Implementation of Monetary Policy

Schmitz

2013

Economic Notes

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In addition to revamping existing rules for bank capital, Basel III introduces a new global framework for liquidity regulation. One part of this framework is the Liquidity Coverage Ratio (LCR), which requires banks to hold sufficient high-quality liquid assets to survive a 30-day period of market stress. As monetary policy typically involves targeting the interest rate on loans of one of these assets-central bank reserves-it is important to understand how this regulation may impact the efficacy of central banks' current operational frameworks. We extend a standard model of monetary policy implementation in a corridor system to include term funding and an LCR requirement. When banks face the possibility of an LCR shortfall, we show that it becomes more challenging for a central bank to control the overnight interest rate and that the very short end of the yield curve becomes steeper. These results suggest that central banks may want to adjust their operational frameworks as the new regulation is implemented. JEL classification: E43, E58, G28

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“…We estimate demand for precautionary excess reserves and the estimation results are used to measure the involuntary excess reserves as the difference between actual excess reserves and the estimated precautionary excess reserves. Following Bindseil, Camba-Mendez, Hirsch, and Weller (2006), we define excess reserves as the current account holdings of banks with the central bank beyond required reserves. Aikaeli (2011) argues that banks also tend to demand more excess reserves to buffer credit risk.…”

Section: Involuntary Excess Reserve Ratio (Ierr) Measurementioning

confidence: 99%

An analysis of involuntary excess reserves, monetary policy and risk-taking behaviour of Chinese Banks

Nguyen

Boateng

2015

International Review of Financial Analysis

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In this paper, we examine the effects of monetary policy on the risk-taking behaviour of Chinese banks in the presence of involuntary excess reserves based on a sample of 95 banks. We find that involuntary excess reserves lead to more aggressive risk-taking suggesting that large involuntary excess reserves stimulate the rapid expansion of credit and the price bubble in the Chinese financial market. However, banks with larger involuntary excess reserves tend to reduce risk-taking more rapidly under the tightening monetary policy regime. The paper sheds light on the effectiveness of government monetary policy in reducing the risk-taking behaviour of banks in an emerging market where involuntary excess reserves are present.

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Excess reserves and the implementation of monetary policy of the ECB

Abstract: 4Non-technical summary 5

Cited by 32 publications

References 5 publications

Monetary Policy Transmission with Interbank Market Fragmentation

Monetary Policy Transmission with Interbank Market Fragmentation

The Impact of the Liquidity Coverage Ratio (LCR) on the Implementation of Monetary Policy

An analysis of involuntary excess reserves, monetary policy and risk-taking behaviour of Chinese Banks

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