Bank heterogeneity and monetary policy transmission

Sophocles Brissimis and Manthos Delis ()

No 1233, Working Paper Series from European Central Bank

Abstract: Heterogeneity in the response of banks to a change in monetary policy is an important element in the transmission of this policy through banks. This paper examines the role of bank liquidity, capitalization and market power as internal factors influencing banks' reaction in terms of lending and risk-taking to monetary policy impulses. The ultimate impact of a monetary policy change on bank performance is also considered. The empirical analysis, using large panel datasets for the United States and the euro area, elucidates the sources of differences in the response of banks to changes in policy interest rates by disaggregating down to the individual bank level. This is achieved by the use of a Local GMM technique that also enables us to quantify the degree of heterogeneity in the transmission mechanism. It is argued that the extensive heterogeneity in banks' response identifies overlooked consequences of bank behavior and highlights potential monetary sources of the current financial distress. JEL Classification: E44, E52, G21, C14

Keywords: Bank heterogeneity; bank performance; monetary policy; risk-taking (search for similar items in EconPapers)
Date: 2010-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Working Paper: Bank Heterogeneity and Monetary Policy Transmission (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20101233

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