Template-Type: ReDIF-Paper 1.0
Author-Name: Per Asberg-Sommar
Author-X-Name-First: Per
Author-X-Name-Last: Asberg-Sommar
Author-Name: Mathias Drehmann
Author-X-Name-First: Mathias
Author-X-Name-Last: Drehmann
Author-Name: Denise Hansson
Author-X-Name-First: Denise
Author-X-Name-Last: Hansson
Author-Name: Vatsala Shreeti
Author-X-Name-First: Vatsala
Author-X-Name-Last: Shreeti
Title: What determines banks' excess demand for reserves?
Abstract: What determines banks' demand for holding reserves at the central bank overnight? This has become a critical question for central banks that are shrinking their balance sheets. We exploit the unique operational framework in Sweden and quantify the factors that drive banks' demand to hold excess reserves at the central bank. Using granular data, we document significant fragmentation in interbank markets with a set of banks that never trade in interbank markets (inactive banks) and others that do (active banks). Active banks' excess reserves increase with their payment flow volatility and the cost of borrowing in interbank markets. Furthermore, excess reserve holdings shrink when aggregate interbank activity is high. Inactive banks' excess reserves also increase with their payment flow volatility but show greater persistence over time, underlining their passivity. Our findings not only shed light on the bank-level drivers of excess reserve demand but also on likely dynamics in untested demand-driven floors.
Creation-Date: 2026-09
File-URL: https://www.bis.org/publ/work1376.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1376.htm
File-Format: text/html
Number: 1376
Keywords: excess reserves, reserve demand, interbank markets, demand-driven floor
Classification-JEL: E41, E58, E52, G21
Handle: RePEc:bis:biswps:1376