Bank heterogeneity and monetary policy transmission
AbstractHeterogeneity in the response of banks to a change in monetary policy is an important element in the transmission of this policy through banks. This paper examines the role of bank liquidity, capitalization and market power as internal factors influencing banks’ reaction in terms of lending and risk-taking to monetary policy impulses. The ultimate impact of a monetary policy change on bank performance is also considered. The empirical analysis, using large panel datasets for the United States and the euro area, elucidates the sources of differences in the response of banks to changes in policy interest rates by disaggregating down to the individual bank level. This is achieved by the use of a Local GMM technique that also enables us to quantify the degree of heterogeneity in the transmission mechanism. It is argued that the extensive heterogeneity in banks’ response identifies overlooked consequences of bank behavior and highlights potential monetary sources of the current financial distress. JEL Classification: E44, E52, G21, C14
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1233.
Date of creation: Aug 2010
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Other versions of this item:
- Sophocles N. Brissimis & Manthos D. Delis, 2009. "Bank Heterogeneity and Monetary Policy Transmission," Working Papers 101, Bank of Greece.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-28 (All new papers)
- NEP-BAN-2010-08-28 (Banking)
- NEP-CBA-2010-08-28 (Central Banking)
- NEP-EEC-2010-08-28 (European Economics)
- NEP-MAC-2010-08-28 (Macroeconomics)
- NEP-MON-2010-08-28 (Monetary Economics)
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