The bank lending channel revisited

Piti Disyatat

No 297, BIS Working Papers from Bank for International Settlements

Abstract: A central proposition in research on the role that banks play in the transmission mechanism is that monetary policy imparts a direct impact on deposits and that deposits, insofar as they constitute the supply of loanable funds, 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. The framework also shows how banks, depending on the strength of their balance sheets, could act either as absorbers or amplifiers of shocks originiating in the financial system.

Keywords: systemic risk; Macroprudential regulation; Portfolio distress loss; Credit default swap; Dynamic conditional correlation (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-02
New Economics Papers: this item is included in nep-ban and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

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Related works:
Journal Article: The Bank Lending Channel Revisited (2011)
Journal Article: The Bank Lending Channel Revisited (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:297

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