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  2. ASSA Annual Meeting
  3. 2026
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  5. Unconventional Monetary Policy
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Unconventional Monetary Policy

Paper Session

Monday, Jan. 5, 2026 8:00 AM - 10:00 AM (EST)

Loews Philadelphia Hotel, Commonwealth Hall A2
Hosted By: American Finance Association
  • Yiming Ma, Columbia University

A Tale of Demand and Supply for Central Bank Reserves

Sriya Anbil
,
Federal Reserve Board
Sebastian Infante
,
Federal Reserve Board
Zeynep Senyuz
,
Federal Reserve Board

Abstract

We provide a new framework for understanding demand and supply in the interbank market for central bank reserves in the U.S., the federal funds market. Using high frequency bank-level data on reserves and deposits, we show only a subset of domestic banks meaningfully increase reserves in response to deposit inflows, highlighting the importance of bank heterogeneity. Building upon insights from the market micro-structure and leveraging banks’ response to deposit shocks, we find that bank lenders are price inelastic, and their lending becomes even more inelastic as the level of reserves in the banking system declines. Our results underscore the importance of unpacking micro-level data to understand how the market for central bank reserves operates, and thus, may help inform monetary policy implementation.

Banking Under Large Excess Reserves

Basile Dubois
,
McGill University
Paul Rintamäki
,
Frankfurt School of Finance & Management

Abstract

"We examine the effects of quantitative easing (QE) on bank lending in the Eu-
rozone. QE has substantially increased central bank reserves held by commer-
cial banks and raised the volume of short-term wholesale deposits, which made
bank funding less stable. Because of Basel III regulation, large volumes of excess
reserves and short-term wholesale deposits curtail bank lending. We develop a
structural model incorporating imperfect competition in credit and deposit mar-
kets and regulatory costs that escalate as banks approach minimum requirements.
This framework allows us to quantify the cost of specific regulatory constraints and
assess how excess reserves contribute to regulatory costs. In France, QE increased
the marginal cost of long-term lending by 16 basis points in Q4 2021. Counter-
factual analysis indicates that maintaining reserves at their 2019 level of 2 trillion
euros instead of 4 trillion euros would have boosted aggregate bank lending by
approximately 5% in Q4 2021."

QE, QT, Bank Liquidity Management and Non-Bank Funding: Evidence from Administrative Data

Matt Darst
,
Federal Reserve Board
Sotirios Kokas
,
University of Essex
Alexandros Kontonikas
,
University of Essex
Jose-Luis Peydro
,
Imperial College London
Alexandros Vardoulakis
,
Federal Reserve Board

Abstract

We study how banks adjust their funding and lending strategies in response to an increase in funding fragility. Using detailed U.S. administrative data on deposit accounts and loan-level commitments, matched with bank-firm supervisory balance sheets, we show how quantitative easing and tightening policies affect the flow of uninsured deposits by non-bank financial institutions. Banks with more uninsured deposit inflows actively manage liquidity risk by shifting from uninsured to insured deposits and reducing the supply of contingent credit lines offered to corporate clients. Bank liquidity management has real effects as firms face a reduction in liquidity insurance and reduce investment.

Discussant(s)
Kathy Yuan
,
London School of Economics
William Diamond
,
University of Pennsylvania
Viral Acharya
,
New York University
JEL Classifications
  • G2 - Financial Institutions and Services