Liquidity Policies and Bank Lending

Koray Alper Timur Hulagu Gursu Keles Central Bank of Question

• Can monetary policies which directly manipulate liquidity positions of banks affect bank lending? – Empirical evidence from a level panel dataset Monetary Transmission

CB Money Channel

Intertemporal Prices, OMO Policy Rate Cost of Capital

Reserves REAL ECONOMY

Reservable Loanable Credit Liabilities Funds Supply

Bank Lending Channel

Bernanke and Blinder (1988) Literature

Reservable Loanable Credit Liabilities Funds Supply

• Size: Kashyap and Stein (1995) • Liquidity: Kashyap and Stein (2000), Gambacorta (2005) • Capitalization: Kishan and Opiela (2000) Literature

Policy OMO Rate

Reserves

No connection • Disyatat (2010) • Friedman and Kuttner (2010) Monetary Transmission

CB Money Channel

Policy OMO Intertemporal Prices, Rate Cost of Capital RR

Reserves REAL ECONOMY

Reservable Loanable Credit Liabilities Funds Supply

Bank Lending Channel Literature

• Ehrmann et al. (2001) for the Euro area • Matousek and Sarantis (2009) for central and eastern Europe • Takeda et al. (2005) for Brazil • Brooks (2007) for Turkey Literature

• Alper et al. (2011) provides survey evidence on liquidity and bank lending in Turkey. • Liquidity position is an important determinant of bank lending • Banks are reluctant to rely heavily on O/N CB funding • Resorting standing facilities is percieved costly in terms of reputation Methodology

• Following Bernanke and Blinder (1988), Ehrmann et al. (2001)

, = + −

, = , + −

, = + Methodology

• We estimate

Δ, = + ∑ Δ, + ∑ Δ + ∑ − ∑ Δ + ∑ , + ∑ Δ,

, : Bank specific liquidity position Methodology

Bank specific liquidity position:

– Liquid assets do not include required reserves – We also consider systemic liquidity, measured by net OMO Data

• A panel of 13 commercial banks in Turkey, 2002Q4-2011Q1 • 95.3% of total assets, 94.7% of total credits are covered by the 13 Liquidity Ratios by Bank 80 80

70 70

60 60

Systemic Liquidity (Right Axis) 50 50 T.C.ZİRAAT BANKASI T.HALK BANKASI A.Ş. T.VAKIFLAR BANKASI T.A.O. 40 40 TÜRK EKONOMİ BANKASI A.Ş. T.A.Ş. 30 30 ŞEKERBANK T.A.Ş. T.GARANTİ BANKASI A.Ş. T.İŞ BANKASI A.Ş. 20 20 YAPI VE KREDİ BANKASI A.Ş. OYAK BANK A.Ş. FİNANSBANK A.Ş. 10 10 HSBC BANK A.ş DENİZBANK A.Ş. 0 0

-10 -10

-20 -20 2002 2003 2004 2005 2006 2007 2008 2009 2010 Results Conclusion

• Bank specific liquidity is important in bank lending in Turkey • No bank lending channel in the traditional sense • Systemic liquidity is also important • The more the excess systemic liquidity, the less relevant the bank specific liquidity position