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

Anil Perera, Deborah Ralston and Jayasinghe Wickramanayake

Journal of International Financial Markets, Institutions and Money, 2014, vol. 29, issue C, 195-216

Abstract: 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.

Keywords: Off-balance sheet banking; Bank lending channel; Panel estimates; South Asia (search for similar items in EconPapers)
JEL-codes: E44 E5 G21 G32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:29:y:2014:i:c:p:195-216

DOI: 10.1016/j.intfin.2013.12.008

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