Standing lending facility in interbank market: Evidence from China.

ABSTRACT: We observe an anomaly that SLF quantity expansion is often accompanied by higher interbank market rates. With the Shibor bid panel, this paper empirically shows that SLF easing encourages bank risk-taking activity, and amplifies bank liquidity demand. The induced demand dominates the liquidity supply effect and leads to higher interbank rates. Moreover, the risk-taking behavior of state-owned banks is more sensitive to SLF than that of non-state-owned banks. These features make SLF a better expectation management tool than a price-based or quantity-based tool for interbank market liquidity management.

SUBMITTER: Guo T 

PROVIDER: S-EPMC10218752 | biostudies-literature | 2023

REPOSITORIES: biostudies-literature