Author(s):
Daniel Fricke, Stefan Greppmair, Karol Paludkiewicz
Date:
February 2024
Abstract:
We show that the transmission of the European Central Bank’s (ECB) recent monetary policy tightening differs across banks depending on their level of excess reserves. Specifically, the net worth of reserve-rich banks may display a boost when the interest rate paid on reserves increases strongly. Focusing on the ECB’s 2022 rate hiking cycle, we show that reserve-rich banks’ credit supply is less sensitive to the monetary policy tightening compared to other banks. The effect varies in the cross-section of both banks and firms. The results are binding at the firm level, indicating the presence of real effects.
Link:
Deutsche Bundesbank Discussion Paper No 05/2024 – Excess reserves and monetary policy tightening