scholarly journals Monetary Transmission through Shadow Banks

2019 ◽  
Vol 33 (6) ◽  
pp. 2379-2420 ◽  
Author(s):  
Kairong Xiao
Keyword(s):  
Monetary Policy ◽  
Banking Sector ◽  
Structural Model ◽  
Shadow Banking ◽  
Oxford University ◽  
Shadow Banks ◽  
Bank Deposits ◽  
The Difference ◽  
Pass Through ◽  
The Impact

Abstract I find that shadow bank money creation significantly expands during monetary-tightening cycles. This “shadow banking channel” offsets reductions in commercial bank deposits and dampens the impact of monetary policy. Using a structural model of bank competition, I show that the difference in depositor clienteles quantitatively explains banks’ different responses to monetary policy. Facing a more yield-sensitive clientele, shadow banks are more likely to pass through rate hikes to depositors, thereby attracting more deposits when the Federal Reserve raises rates. My results suggest that monetary tightening could unintentionally increase financial fragility by driving deposits into the uninsured shadow banking sector. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Banking: Interest Spread, Inelastic Deposit Supply, and Mergers

2006 ◽  
Vol 45 (4II) ◽  
pp. 1055-1070 ◽  
Author(s):  
M. Idrees Khawaja ◽  
Musleh-Ud Din
Keyword(s):  
Monetary Policy ◽  
Banking Sector ◽  
Developing Economies ◽  
Bank Lending ◽  
Bank Lending Channel ◽  
Treasury Bills ◽  
Lending Channel ◽  
Lending Rates ◽  
The Difference ◽  
Pass Through

Interest spread, the difference between what a bank earns on its assets and what it pays on its liabilities, has been on an upward trend during the last few years: during 2005 the average interest spread of the banking sector has increased by 2.14 percent. An increase in the interest spread implies that either the depositor or the borrower or both stand to loose. In the context of developing economies, the lack of alternate avenues of financial intermediation aggravates the adverse impact of increase in spread.1 Interest spread also has implications for the effectiveness of the bank lending channel. For example, with a commitment to market based monetary policy, the central bank influences the yield on treasury bills (T. bill hereafter) that in turn affects the deposit and lending rates.2 The change in these rates influences the cost of capital that in turn affects the level of consumption and investment in the economy. If the pass-through of the changes in yield on T. bill rate to the deposit and lending rates is asymmetric then this changes the spread, for better or worse, depending upon the nature of asymmetry. If the increase in spread is due to lower return to depositors then this discourages savings; alternatively if it is due to higher charge on loans, investment decisions are affected. In either case the increase in spread has an adverse bearing upon the effectiveness of bank lending channel of monetary policy and has therefore important implications for the economy......

scholarly journals Shadow Banking, Bank Liquidity and Monetary Policy Shocks in Emerging Countries: A Panel VAR Approach

2020 ◽  
Vol 11 (6(J)) ◽  
pp. 52-65
Author(s):  
Sheunesu Zhou
Keyword(s):  
Monetary Policy ◽  
Banking Sector ◽  
Emerging Market ◽  
Banking System ◽  
Shadow Banking ◽  
Panel Var ◽  
Shadow Banking System ◽  
Monetary Policy Shock ◽  
Positive Shock ◽  
The Impact

The study provides an analysis of the relationships between monetary policy, shadow banking and bank liquidity in emerging market economies. It is aimed at broadening knowledge on the effect of shadow banking on monetary policy transmission. Furthermore, the study seeks to analyze the impact of changes in bank liquidity on the growth of the shadow banking sector. We employ panel VAR technique to analyse the dynamics of monetary policy, shadow banking and bank liquidity using data for 15 emerging economy countries. A contractionary monetary policy shock results in a decrease in shadow banking and a decrease in bank liquidity. We also find that a positive shock in bank liquidity increases shadow bank growth and a positive shock in shadow banking also increases bank liquidity. The results point to complementarity between shadow banking and bank liquidity; and the interconnectedness between the two markets in emerging economies. We suggest continuous monitoring of shadow banking activities to minimize transmission of risk from the shadow banking system into the banking sector.

Uncertainty and the Shadow Banking Crisis: Estimates from a Dynamic Model

2021 ◽  
Author(s):  
Xu Tian
Keyword(s):  
Banking Sector ◽  
The United States ◽  
Parameter Estimates ◽  
Shadow Banking ◽  
Data Set ◽  
Asset Return ◽  
Shadow Banks ◽  
Uncertainty Shocks ◽  
Maturity Mismatch ◽  
The Impact

Shadow banks play an important role in the modern financial system and are arguably the source of key vulnerabilities that led to the 2007–2009 financial crisis. I develop a quantitative framework with uncertainty fluctuations and endogenous bank default to study the dynamics of shadow banking. I argue that the increase in asset return uncertainty during the crisis results in a spread spike, making it more costly for shadow banks to roll over their debt in the short-term debt market. As a result, these financial institutions are forced to deleverage, leading to a decrease in credit intermediation. The model is estimated using a bank-level data set of shadow banks in the United States. The parameter estimates imply that uncertainty shocks can explain 72% of asset contraction and 70% of deleveraging in the shadow banking sector. Maturity mismatch and asset fire-sales amplify the impact of the uncertainty shocks. First-moment shocks to bank asset return, financial shocks, or fire-sale cost shocks alone cannot reproduce the large interbank spread spike, dramatic deleveraging, or contraction in the U.S. shadow banking sector during the crisis. The model also allows for policy experiments. I analyze how unconventional monetary policies can help to counter the rise in the interbank spread, thus stabilizing the credit supply. Taking bank moral hazard into consideration, I find that government bailout might be counterproductive as it might result in more aggressive risk-taking among shadow banks, especially when bailout decisions are based on bank characteristics. This paper was accepted by Gustavo Manso, finance.

scholarly journals Shadow banks and the risk-taking channel of monetary policy transmission in the euro area

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Arina Wischnewsky ◽  
Matthias Neuenkirch
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Risk Taking ◽  
Banking Sector ◽  
Shadow Banking ◽  
Monetary Policy Transmission ◽  
Monetary Policy Shocks ◽  
Shadow Banks ◽  
Policy Transmission ◽  
Policy Shocks

AbstractWe provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through an increase in shadow banks’ total asset growth and their risk assets ratio. Our dataset covers the period 2000Q1–2018Q3 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, the aforementioned two indicators for the shadow banking sector. Based on vector autoregressive models for the euro area as a whole, we find a portfolio reallocation effect towards riskier assets and evidence for a general expansion of assets. Both effects last for roughly six quarters in the case of conventional monetary policy shocks, whereas for unconventional monetary policy shocks the responses are significant for two quarters only. Country-specific as well as sector-specific estimations confirm these findings for most of the euro area countries and all non-bank types, but also reveal some heterogeneity in the reaction of financial institutions.

The influence of inflation targeting on the pass-through effect of the exchange rate

2018 ◽  
pp. 70-84
Author(s):  
Ph. S. Kartaev ◽  
Yu. I. Yakimova
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Policy Regime ◽  
Short And Long Term ◽  
The Exchange Rate ◽  
Pass Through ◽  
The Impact

The paper studies the impact of the transition to the inflation targeting regime on the magnitude of the pass-through effect of the exchange rate to prices. We analyze cross-country panel data on developed and developing countries. It is shown that the transition to this regime of monetary policy contributes to a significant reduction in both the short- and long-term pass-through effects. This decline is stronger in developing countries. We identify the main channels that ensure the influence of the monetary policy regime on the pass-through effect, and examine their performance. In addition, we analyze the data of time series for Russia. It was concluded that even there the transition to inflation targeting led to a decrease in the dependence of the level of inflation on fluctuations in the ruble exchange rate.

scholarly journals The Dynamics of Bank Spreads and Financial Structure

2014 ◽  
Vol 04 (04) ◽  
pp. 1450014 ◽  
Author(s):  
Reint Gropp ◽  
Christoffer Kok ◽  
Jung-Duk Lichtenberger
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Banking Sector ◽  
Interest Rate Derivatives ◽  
Developed Markets ◽  
Speed Up ◽  
Pass Through ◽  
Bank Spreads ◽  
Effectiveness Of Monetary Policy

This paper investigates the effect of within banking sector competition and competition from financial markets on the dynamics of the transmission from monetary policy rates to retail bank interest rates in the euro area. We use a new dataset that permits analysis for disaggregated bank products. Using a difference-in-difference approach, we test whether development of financial markets and financial innovation speed up the pass through. We find that more developed markets for equity and corporate bonds result in a faster pass-through for those retail bank products directly competing with these markets. More developed markets for securitized assets and for interest rate derivatives also speed up the transmission. Further, we find relatively strong effects of competition within the banking sector across two different measures of competition. Overall, the evidence supports the idea that developed financial markets and competitive banking systems increase the effectiveness of monetary policy.

scholarly journals Concentration of Banking Sector and Loan Markups in Short Term: An Example from Poland

2014 ◽  
Vol 5 (2) ◽  
pp. 26-44
Author(s):  
Krysztof Drachal
Keyword(s):  
Monetary Policy ◽  
Banking Sector ◽  
Mortgage Market ◽  
Future Research ◽  
Simple Linear Regression ◽  
Short Term ◽  
Monthly Data ◽  
Regression Techniques ◽  
The Difference ◽  
The Relationship

The aim of this paper is to present an analysis of the relationship between concentration of the banking sector and banks' markups on offered loans. The markup is understood as the difference between the rate offered by banks and the reference rate fixed by the Monetary Policy Council. The period between 2009 and 2013 was analyzed. Monthly data from the Polish banking sector were considered. This paper also consists of the literature review, which focuses on the mortgage market. The methodology used for the analysis is based mainly on simple linear regression techniques. It is found that such methods are not sufficient to give conclusive answers. Therefore additional future research is proposed.

scholarly journals THE ROLE OF THE CENTRAL BANK IN THE FUNCTION OF IMPROVEMENT OF LIQUIDITY OF BANKING SECTOR IN BOSNIA AND HERZEGOVINA

2019 ◽  
Vol 12 (24) ◽  
Author(s):  
Goran Mitrović ◽  
Živko Erceg
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Bosnia And Herzegovina ◽  
Banking Sector ◽  
Banking System ◽  
Policy Instruments ◽  
Foreign Banks ◽  
Dayton Agreement ◽  
The Impact

The monetary policy of Bosnia andHerzegovina is rather limited because it is basedon the principles of a currency boardcharacterized by the impossibility of implementingthe basic monetary policy instruments incomparison with the monetary policy of theEuropean Union. However, the constant presenceof European integrations should point the need fora more drastic change in the monetary policy ofBosnia and Herzegovina. By entering theEuropean Monetary Union (EMU), the monetaryterritory of Bosnia and Herzegovina will becomeone of the branches of the European Central Bank(ECB). In addition, it is not difficult to concludewhy the Law about the Central Bank of Bosnia andHerzegovina has been adopted with the first lawsof the Dayton Agreement, if it is known that thelargest part of the banking system, and thereforethe financial market, is owned by foreign banks.This work will point out the significance of theCentral Bank of Bosnia and Herzegovina, as oneof the most important factors for maintaining thepermanent liquidity of the banking sector inBosnia and Herzegovina. The possibilities andlimitations of the Central Bank of Bosnia andHerzegovina will be determined, with theassumption of macroeconomic sustainability overa longer period of time. The need of reforming thebanking system in Bosnia and Herzegovina will beanalyzed through the constant implementation ofthe Basel standards with the increasingparticipation of foreign banks in the Bosnia andHerzegovina. It will be determined the impact ofthe implementation of the Basel III in the bankingindustry in Bosnia and Herzegovina and itsconsequences on the banking and economicsystem.models, on the ways of financing theelimination of adverse consequences of naturaldisasters.

scholarly journals Monetary Policy Effects on Energy Sector Bubbles

Energies ◽  
2019 ◽  
Vol 12 (3) ◽  
pp. 472
Author(s):  
Petre Caraiani ◽  
Adrian Călin
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Asset Prices ◽  
The United States ◽  
Energy Sector ◽  
Monetary Policy Shocks ◽  
Policy Shocks ◽  
The Difference ◽  
The Interest Rate ◽  
The Impact

We investigate the effects of monetary policy shocks, including unconventional policy measures, on the bubbles of the energy sector, for the case of the United States. We estimate a time-varying Bayesian VAR model that allows for quantifying the impact of monetary policy shocks on asset prices and bubbles. The energy sector is measured through the S&P Energy Index, while bubbles are measured through the difference between asset prices and the corresponding dividends for the energy sector. We find significant differences in the impact of monetary policy shocks for the aggregate economy and for the energy sector. The findings seem sensitive to the interest rate use, i.e., whether one uses the shadow interest rate or the long-term interest rate.

scholarly journals How does monetary policy respond to the dynamics of the shadow banking sector?

2020 ◽  
Vol 25 (2) ◽  
pp. 228-247
Author(s):  
Luca Agnello ◽  
Vitor Castro ◽  
Fredj Jawadi ◽  
Ricardo M. Sousa
Keyword(s):  
Monetary Policy ◽  
Banking Sector ◽  
Shadow Banking
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