韩国裸舞

Basile Dubois

Toulouse School of Economics

Banking under large excess reserves

Date: Friday, January 17, 2025
Time: 10:30 AM - 11:45 AM
Location: Bronfman building, Room 245

All are cordially invited to attend.

Abstract

We examine the effects of quantitative easing (QE) on bank lending in the Eurozone. QE has substantially increased central bank reserves held by commercial 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 markets 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. Counterfactual 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.