Banks may adjust their pricing policies to induce a switch from time to demand deposits, which would shorten the maturity of deposits. In addition, banks may write off-balance-sheet credit lines and thus make future liquidity commitments to firms.
Both types of adjustment expose banks to higher liquidity risk – potentially under the expectation that access to central bank liquidity would continue to be easily available. Such an increasing “liquidity dependence” has been documented for the U.S. banking sector. [17] Evidence for the United States also shows that quantitative tightening does not necessarily lead to a reversal of these trends.