Published in:De Nederlandsche Bank Working Paper ; No. 703
Extent:
1 Online-Ressource (38 p)
Language:
English
DOI:
10.2139/ssrn.3763715
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 7, 2021 erstellt
Description:
We analyze the impact of a requirement similar to the Basel III Liquidity Coverage Ratio (LCR) on conventional monetary policy implementation. Combining unique data sets of Dutch banks from 2002 to 2005, we find that the introduction of the LCR impacts banks’ behaviour in open market operations. After the introduction of the LCR, banks bid for higher volumes and pay higher interest rates for central bank funds. In line with theory, banks reduce their reliance on overnight and short term unsecured funding. We do not observe a worsening of collateral quality pledged in open market operations. Thus, to correctly anticipate an open market operation’s effect on interest rates, monetary policy requires central banks to consider not only the size of the operation, but also how it impacts banks’ liquidity management and compliance with the LCR