Banks’ exposure to interest rate risk and the transmission of monetary policy

Matthieu Gomez, Augustin Landier, David Sraer and David Thesmar

Journal of Monetary Economics, 2021, vol. 117, issue C, 543-570

Abstract: The cash-flow exposure of banks to interest rate risk, or income gap, is a significant determinant of the transmission of monetary policy to bank lending and real activity. When the Fed Funds rate rises, banks with a larger income gap generate stronger earnings and contract their lending by less than other banks. This finding is robust to controlling for factors known to affect the transmission of monetary policy to bank lending. It also holds on loan-level data, even when we control for firm-specific credit demand. When monetary policy tightens, firms borrowing from banks with a larger income gap reduce their investment by less than other firms.

Keywords: Income gap; Monetary policy; Bank lending channel (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Banks' exposure to interest rate risk and the transmission of monetary policy (2016)
Working Paper: Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy (2014)
Working Paper: Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy (2013)
Working Paper: Banks' Exposure to Interest Rate Risk and The Transmission of Monetary Policy (2013)
Working Paper: Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:543-570

DOI: 10.1016/j.jmoneco.2020.03.011

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