The purpose of this paper is to examine how changes in monetary policy affect banks liquidity management strategies. Building on the classic Diamond-Dybvig framework, it has been constructing an extended model that incorporates liquidity regulatory constraints. Using dynamic panel data and the System Generalized Method of Moments (System GMM) approach, it has been analyzing the mechanisms and heterogeneous effects through which monetary policy adjustments influence commercial banks liquidity management strategies. The main findings are threefold. First, expansionary monetary policy significantly increases banks liquidity creation by lowering funding costs, but it also induces greater risk-taking, evidenced by an average 12.3% increase in the allocation of high-risk assets. Second, structural monetary policy tools (e.g., targeted liquidity facilities) have a disproportionate effect on large banks liquidity, with optimization impacts about 1.8 times greater for large banks than for small and medium banks, thus exacerbating liquidity stratification. Third, each 1 percentage point increase in the Liquidity Coverage Ratio (LCR) requirement reduces monetary policy transmission efficiency by approximately 0.15 standard deviations. These findings highlight the important moderating role of bank-specific characteristics in monetary policy transmission, and they provide a theoretical and empirical basis for improving coordination between macroprudential policies and micro-level regulations.
Bo Zhang (Wed,) studied this question.