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Impact of off-balance sheet banking on the bank lending channel of monetary transmission: Evidence from South Asia

  • Perera, Anil
  • Ralston, Deborah
  • Wickramanayake, J.

Based on a panel data set for 114 South Asian commercial banks, we find that off-balance sheet banking reduces the effectiveness of the bank lending channel of monetary transmission. That is, banks with high exposure to off-balance sheet activities are able to insulate their loan supply against a monetary policy shock thus creating a buffering effect on monetary transmission. We also suggest that these effects are substantial for small, highly-liquid and well-capitalised banks. The buffering effect of off-balance sheet banking on monetary transmission raises important policy issues, particularly with regard to the effectiveness of monetary policy and the definitions of monetary aggregates.

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Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 29 (2014)
Issue (Month): C ()
Pages: 195-216

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Handle: RePEc:eee:intfin:v:29:y:2014:i:c:p:195-216
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