scholarly journals The Deposits Channel of Monetary Policy*

2017 ◽  
Vol 132 (4) ◽  
pp. 1819-1876 ◽  
Author(s):  
Itamar Drechsler ◽  
Alexi Savov ◽  
Philipp Schnabl
Keyword(s):  
Monetary Policy ◽  
Market Power ◽  
Banking System ◽  
Strong Relationship ◽  
Bank Lending ◽  
Liquidity Premium ◽  
Balance Sheets ◽  
Fed Funds Rate ◽  
Bank Balance Sheets ◽  
Transmission Of Monetary Policy

Abstract We present a new channel for the transmission of monetary policy, the deposits channel. We show that when the Fed funds rate rises, banks widen the spreads they charge on deposits, and deposits flow out of the banking system. We present a model where this is due to market power in deposit markets. Consistent with the market power mechanism, deposit spreads increase more and deposits flow out more in concentrated markets. This is true even when we control for lending opportunities by only comparing different branches of the same bank. Since deposits are the main source of liquid assets for households, the deposits channel can explain the observed strong relationship between the liquidity premium and the Fed funds rate. Since deposits are also a uniquely stable funding source for banks, the deposits channel impacts bank lending. When the Fed funds rate rises, banks that raise deposits in concentrated markets contract their lending by more than other banks. Our estimates imply that the deposits channel can account for the entire transmission of monetary policy through bank balance sheets.

What Do a Million Observations on Banks Say About the Transmission of Monetary Policy?

2000 ◽  
Vol 90 (3) ◽  
pp. 407-428 ◽  
Author(s):  
Anil K Kashyap ◽  
Jeremy C Stein
Keyword(s):  
Monetary Policy ◽  
Bank Lending ◽  
Monetary Transmission ◽  
Bank Lending Channel ◽  
Data Set ◽  
Balance Sheets ◽  
Lending Channel ◽  
The Impact ◽  
Transmission Of Monetary Policy ◽  
Quantitative Importance

We study the monetary-transmission mechanism with a data set that includes quarterly observations of every insured U.S. commercial bank from 1976 to 1993. We find that the impact of monetary policy on lending is stronger for banks with less liquid balance sheets—i.e., banks with lower ratios of securities to assets. Moreover, this pattern is largely attributable to the smaller banks, those in the bottom 95 percent of the size distribution. Our results support the existence of a “bank lending channel” of monetary transmission, though they do not allow us to make precise statements about its quantitative importance. (JEL E44, E52, G32)

TRENDS IN BANK LENDING IN UKRAINE

2017 ◽  
Author(s):  
Nataliia Moroz ◽  
◽  
Lidiya Bondarenko ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Banking System ◽  
Bank Lending ◽  
Loan Portfolio ◽  
Quality Requirements ◽  
Balance Sheets ◽  
Rate Level ◽  
Systemic Risks ◽  
Systemically Important Banks

A study has been carried out on the credit environment of the banks, which constrains and stimulates their credit activity, is the crisis caused by the COVID-19 pandemic, as well as the monetary policy of the regulator (interest rate level, changes in the assessment of the creditworthiness of borrowers). Trends in lending to the banking system of Ukraine, in particular the dynamics of credit operations by categories of borrowers have been analysed. The reasons for the negative trends in bank lending have been identified. Ten banks with the largest share of non-performing loans have been identified, as well as six banks with the largest share of non-performing loans as of 01.08.2020. It has been shown that 75 per cent of non-performing loans belong to four systemically important banks, the lack of adequate functioning of which may increase the systemic risks of the banking system. It was suggested that the regulator should tighten the quality requirements of the loan portfolio of systemically important banks and encourage them to write off, sell and restructure non-performing loans more actively from their balance sheets.

scholarly journals Bank Consolidation, Efficiency, and Profitability in Italy

2017 ◽  
Vol 17 (175) ◽  
Author(s):  
Anke Weber
Keyword(s):  
Banking Sector ◽  
Banking System ◽  
Operational Efficiency ◽  
Policy Options ◽  
Efficiency Gains ◽  
Consolidation Process ◽  
Comprehensive Strategy ◽  
Balance Sheets ◽  
Cross Country ◽  
Bank Balance Sheets

This paper examines the case for efficiency-driven banking sector consolidation in Italy, evaluates its potential effects on profitability, and discusses policy options to facilitate a consolidation process that is as effective as possible. A bottom-up analysis of 386 Italian banks suggests that while profitability is expected to improve as the economy gradually recovers, operational efficiency gains are nonetheless needed to restore large parts of the banking system to healthy profitability. Banking system consolidation can play a role in facilitating such efficiency gains, but its effectiveness is likely to be most as part of a comprehensive strategy that includes complementary reforms to clean up bank balance sheets. Cross-country experience indicates that efficiency gains are more likely to follow consolidations where careful viability analyses are conducted of the synergies and operational improvements that can be achieved.

Liquidity, Risk Premia, and the Financial Transmission of Monetary Policy

2018 ◽  
Vol 10 (1) ◽  
pp. 309-328 ◽  
Author(s):  
Itamar Drechsler ◽  
Alexi Savov ◽  
Philipp Schnabl
Keyword(s):  
Monetary Policy ◽  
Risk Sharing ◽  
Financial System ◽  
Risk Premia ◽  
New Keynesian ◽  
Liquidity Premium ◽  
Impact Risk ◽  
The Cost ◽  
Transmission Of Monetary Policy

In recent years, there has been a resurgence of research on the transmission of monetary policy through the financial system, fueled in part by empirical findings showing that monetary policy affects asset prices and the financial system in ways not explained by the New Keynesian paradigm. In particular, monetary policy appears to impact risk premia in stock and bond prices and to effectively control the liquidity premium in the economy (the cost of holding liquid assets). We review these findings and recent theories proposed to explain them, and we outline a conceptual framework that unifies them. The framework revolves around the central role of liquidity in risk sharing and explains how monetary policy governs its production and use within the financial sector.

What influences bank lending in Saudi Arabia?

2020 ◽  
Vol 27 (2) ◽  
pp. 125-155
Author(s):  
Ken Miyajima
Keyword(s):  
Saudi Arabia ◽  
Private Sector ◽  
Balance Sheet ◽  
Oil Prices ◽  
Bank Lending ◽  
Policy Implications ◽  
Content Type ◽  
Balance Sheets ◽  
Level Data ◽  
Bank Balance Sheets

PurposeDeterminants of credit growth in Saudi Arabia are investigated.Design/methodology/approachA panel approach is applied to macroeconomic and bank-level data spanning 2000 ‐15.FindingsBank lending is supported by strong bank balance sheet conditions (high capital ratio, and growth of NPL provisioning and deposits), and higher growth of both oil prices and non-oil private sector GDP. Lower bank concentration also helps, likely through greater competition, so does stronger institution. Consistent with the literature, lending by Islamic banks may be more responsive to economic activity. Lending remained robust in 2015 despite oil prices having declined, helped by strong bank balance sheets and as banks reduced their holdings of “excess liquidity”. To support bank lending in the period ahead, bank balance sheets need to remain strong. Fiscal adjustment and a reduced reliance on banks to finance the budget deficit would support credit provision to the private sector.Originality/valueThe paper is first to analyze in detail determinants of bank lending in Saudi Arabia applying a panel approach to bank level data, and draws critical policy implications.

The roles of domestic and foreign Islamic banks in Malaysian monetary transmission

2014 ◽  
Vol 7 (2) ◽  
pp. 161-169 ◽  
Author(s):  
Fidlizan Muhammad ◽  
Asmak Ab Rahman ◽  
Ahmad Azam Sulaiman
Keyword(s):  
Monetary Policy ◽  
Banking System ◽  
Bank Lending ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Bank Lending Channel ◽  
Content Type ◽  
Lending Channel ◽  
Level Data ◽  
Loan Supply

Purpose – The aim of this paper is to empirically test the presence of the bank lending channel for the Islamic banking system in Malaysia. Design/methodology/approach – Distributional effects from monetary policy changes were analyzed by three bank characteristics such as size, liquidity and capital. Using the econometric model by Kashyap and Stein (1995), the implementation of a policy contraction leads to reduction in loan supply because some banks may not able to offset a reduction in deposits. The paper explores the response shown between domestic and foreign Islamic banks in Malaysia using bank-level data from 2005 to 2010. Findings – The empirical result indicates presence of the bank lending channel in the Islamic banking system in Malaysia, size and liquidity as sources of difference response of financing supply in domestic bank and capital for foreign Islamic bank and Islamic interbank rate as an efficient tool in conducting monetary policy especially in the Islamic banking system. Originality/value – The paper manages to explore the effectiveness of Islamic the monetary policy tools in the Islamic Banking system in Malaysia. Using Islamic interbank rate as a policy tool, it provides valuable view to policy makers, who are analyzing for efficiency of transmission channel.

An Empirical Investigation of Oil-Macro-financial Linkages in Saudi Arabia

2017 ◽  
Vol 13 (2) ◽  
Author(s):  
Ken Miyajima
Keyword(s):  
Saudi Arabia ◽  
Interest Rates ◽  
Banking System ◽  
Oil Prices ◽  
Feedback Loops ◽  
Lower Growth ◽  
Policy Makers ◽  
Balance Sheets ◽  
Level Data ◽  
Bank Balance Sheets

AbstractAgainst the backdrop of low oil prices, oil-macro-financial linkages in Saudi Arabia are analyzed by applying panel econometric frameworks (multivariate and vector autoregression) to macro- and micro-level data for 9 banks spanning 1999–2014. Lower growth of oil prices and nonoil private sector output leads dampen credit and deposit growth and lift nonperforming loan ratios. Positive feedback loops within bank balance sheets in turn dampen economic activity. U.S. interest rates are not found to be a key determinant. The banking system remains strong at present, but policy makers should monitor its health with the important macro-financial feedback loops in mind.

scholarly journals Transmission of Monetary Policy with Heterogeneity in Household Portfolios

2021 ◽  
Vol 13 (2) ◽  
pp. 1-25
Author(s):  
Ralph Luetticke
Keyword(s):  
Monetary Policy ◽  
New Keynesian ◽  
Liquidity Premium ◽  
Income Risk ◽  
Marginal Value ◽  
Household Portfolios ◽  
Household Portfolio ◽  
Business Cycle Model ◽  
Liquidity Premia ◽  
Transmission Of Monetary Policy

This paper assesses the importance of heterogeneity in household portfolios for the transmission of monetary policy in a New Keynesian business cycle model with uninsurable income risk and assets with different liquidity. In this environment, monetary transmission works through investment, but redistribution lowers the elasticity of investment via two channels: (i) heterogeneity in marginal propensities to invest, and (ii) time variation in the liquidity premium. Monetary contractions redistribute to wealthy households who have high propensities to invest and a low marginal value of liquidity, thereby stabilizing investment. I provide empirical evidence for countercyclical liquidity premia and heterogeneity in household portfolio responses. (JEL E12, E32, E52, G11, G51)

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