Central bank reserves and bank lending spreads

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.