Bank risks, monetary shocks and the credit channel in Brazil: identification and evidence from panel data

Julio Ramos-Tallada ()

Working papers from Banque de France

Abstract: Using a large database of bank financial statements, this paper investigates the determinants of the bank lending channel (BLC) of monetary transmission in Brazil between 1995 and 2012. I extend the standard empirical approach in two main ways. First, I apply a micro-founded strategy for disentangling demand from supply shifts in credit. Using this identification scheme, I show that lending supply is negatively correlated with the short-term market interest rate over the long period. The sensitivity of credit supply to monetary shocks is not related to the bank characteristics generally used in the empirical literature, whereas a proxy of the individual bank external finance premium (EFP) tends to capture financial constraints better than size, liquid assets or capitalization ratios. However, the patterns of the BLC have changed since the onset of the global financial crisis. In the post-crisis period, the money market rate does not affect the lending supply of the average bank anymore, while small banks and those lacking access to long-term funds appear more sensitive to monetary shocks in some estimations. Second, I check whether several types of uncertainty may drive the BLC, beyond liquidity risk. Over the long period, I find evidence that higher market risk borne by banks' securities portfolios (captured by a longer duration of public debt bonds) and lower uncertainty in the money market (captured by a lower volatility of rates) appear to consistently enhance the effectiveness of monetary policy through the BLC.

Keywords: Risks; Monetary policy transmission; Bank lending channel; Identification of supply shifts; Panel data; Brazil. (search for similar items in EconPapers)
JEL-codes: E44 E52 F4 G21 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2015
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Journal Article: Bank risks, monetary shocks and the credit channel in Brazil: Identification and evidence from panel data (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:548

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