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The Bank Lending Channel Revisited

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  • PITI DISYATAT

Abstract

A central proposition in research on the role of banks in the transmission mechanism is that monetary policy imparts a direct impact on deposits and that deposits act as the driving force of bank lending. This paper argues that the emphasis on policy‐induced changes in deposits is misplaced. A reformulation of the bank lending channel is proposed that works primarily through the impact of monetary policy on banks’ balance sheet strength and risk perception. Such a recasting implies, contrary to conventional wisdom, that greater reliance on market‐based funding enhances the importance of the channel.

Suggested Citation

  • Piti Disyatat, 2011. "The Bank Lending Channel Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 711-734, June.
  • Handle: RePEc:wly:jmoncb:v:43:y:2011:i:4:p:711-734
    DOI: 10.1111/j.1538-4616.2011.00394.x
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    File URL: https://doi.org/10.1111/j.1538-4616.2011.00394.x
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