Banks' regulatory buffers, liquidity networks and monetary policy transmission

Christian Merkl and Stephanie Stolz

Applied Economics, 2009, vol. 41, issue 16, 2013-2024

Abstract: Based on a quarterly regulatory dataset for German banks from 1999 to 2004, this article analyses the effects of banks' regulatory capital on the transmission of monetary policy in a system of liquidity networks. The dynamic panel regression results provide evidence in favour of the bank capital channel theory. Banks holding less regulatory capital and less interbank liquidity react more restrictively to a monetary tightening than their peers.

Date: 2009
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Working Paper: Banks' regulatory buffers, liquidity networks and monetary policy transmission (2006)
Working Paper: Banks' regulatory buffers, liquidity networks and monetary policy transmission (2006)
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DOI: 10.1080/00036840802360245

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