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Central bank reserves and bank lending spreads

Author

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  • Lucas Marc Fuhrer
  • Thomas Nitschka
  • Dan Wunderli
Abstract
Since the financial crisis, central bank reserves in the financial system have increased considerably and nowadays represent a significant part of banks’ total assets. We provide empirical evidence that an increase in reserves lowers banks’ lending spreads, i.e. interest rates relative to maturity-matched risk-free rates. Consequently, our analysis shows that central banks can affect bank lending conditions not only by changing the policy rate but also via the quantity of reserves.

Suggested Citation

  • Lucas Marc Fuhrer & Thomas Nitschka & Dan Wunderli, 2021. "Central bank reserves and bank lending spreads," Applied Economics Letters, Taylor & Francis Journals, vol. 28(15), pages 1301-1305, September.
    • Handle: RePEc:taf:apeclt:v:28:y:2021:i:15:p:1301-1305
    DOI: 10.1080/13504851.2020.1809627
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    Cited by:

    1. Wang, Ke & Wang, Yi-Wei & Wang, Quan-Jing, 2022. "Will monetary policy affect energy security? Evidence from Asian countries," Journal of Asian Economics, Elsevier, vol. 81(C).
    2. Nicole Aregger & Jessica Leutert, 2023. "Countering Appreciation Pressure with Unconventional Monetary Policy: The Role of Financial Frictions," International Journal of Central Banking, International Journal of Central Banking, vol. 19(4), pages 251-337, October.
    3. Schelling, Tan & Towbin, Pascal, 2022. "What lies beneath—Negative interest rates and bank lending," Journal of Financial Intermediation, Elsevier, vol. 51(C).
    4. Dr. Romain Baeriswyl & Dr. Lucas Marc Fuhrer & Dr. Petra Gerlach & Dr. Jörn Tenhofen, 2021. "The dynamics of bank rates in a negative-rate environment - the Swiss case," Working Papers 2021-05, Swiss National Bank.
    5. Schelling, Tan & Towbin, Pascal, 2021. "Tiers of Joy? Reserve Tiering and Bank Behavior in a Negative-Rate Environment," CEPR Discussion Papers 16191, C.E.P.R. Discussion Papers.

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