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How Do Changing U.S. Interest Rates Affect Banks in the Gulf Cooperation Council (GCC) Countries?

Author

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  • Mr. Olumuyiwa S Adedeji
  • Yacoub Alatrash
  • Mr. Divya Kirti

Abstract

Given their pegged exchange rate regimes, Gulf Cooperation Council (GCC) countries usually adjust their policy rates to match shifting U.S. monetary policy. This raises the important question of how changes in U.S. monetary policy affect banks in the GCC. We use bank-level panel data, exploiting variation across banks within countries, to isolate the impact of changing U.S. interest rates on GCC banks funding costs, asset rates, and profitability. We find stronger pass-through from U.S. monetary policy to liability rates than to asset rates and bank profitability, largely reflecting funding structures. In addition, we explore the role of shifts in the quantity of bank liabilities as policy rates change and the role of large banks with relatively stable funding costs to explain these findings.

Suggested Citation

  • Mr. Olumuyiwa S Adedeji & Yacoub Alatrash & Mr. Divya Kirti, 2019. "How Do Changing U.S. Interest Rates Affect Banks in the Gulf Cooperation Council (GCC) Countries?," IMF Working Papers 2019/268, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/268
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    References listed on IDEAS

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    1. Itamar Drechsler & Alexi Savov & Philipp Schnabl, 2017. "The Deposits Channel of Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1819-1876.
    2. Padamja Khandelwal & Mr. Ken Miyajima & Mr. Andre O Santos, 2016. "The Impact of Oil Prices on the Banking System in the GCC," IMF Working Papers 2016/161, International Monetary Fund.
    3. Kirti, Divya, 2020. "Why do bank-dependent firms bear interest-rate risk?," Journal of Financial Intermediation, Elsevier, vol. 41(C).
    4. Mr. Ananthakrishnan Prasad & Mr. Raphael A Espinoza, 2012. "Monetary Policy Transmission in the GCC Countries," IMF Working Papers 2012/132, International Monetary Fund.
    5. Piergiorgio Alessandri & Benjamin D. Nelson, 2015. "Simple Banking: Profitability and the Yield Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(1), pages 143-175, February.
    6. William B English, 2002. "Interest rate risk and bank net interest margins," BIS Quarterly Review, Bank for International Settlements, December.
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    Cited by:

    1. Fakhri J. Hasanov & Jeyhun I. Mikayilov, 2020. "Revisiting Energy Demand Relationship: Theory and Empirical Application," Sustainability, MDPI, vol. 12(7), pages 1-15, April.

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    More about this item

    Keywords

    WP; bank; rate; liability; liability rate; GCC bank assets rate; panel data; banks scope; sensitive bank; bank level; bank assets rate; liability structure; Central bank policy rate; Deposit rates; Bank soundness; Competition; Commercial banks; Global;
    All these keywords.

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