Bank Heterogeneity and Monetary Policy Transmission

Bank of Greece Economics Research Department Working Paper No. 101

Posted: 20 Aug 2009 Last revised: 14 Jun 2010

Multiple version iconThere are 2 versions of this paper

Date Written: August 19, 2009

Abstract

Heterogeneity 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.

Keywords: monetary policy, bank heterogeneity, risk-taking, bank performance

JEL Classification: E44, E52, G21, C14

Suggested Citation

Brissimis, Sophocles N. and Delis, Manthos D., Bank Heterogeneity and Monetary Policy Transmission (August 19, 2009). Bank of Greece Economics Research Department Working Paper No. 101, Available at SSRN: https://ssrn.com/abstract=1457661

Sophocles N. Brissimis

Bank of Greece ( email )

21 E. Venizelos Avenue
GR-10250 Athens
Greece

Manthos D. Delis (Contact Author)

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
776
PlumX Metrics