Bank competition, financial reform, and institutions: The importance of being developed
In: Journal of development economics, Band 97, Heft 2, S. 450-465
ISSN: 0304-3878
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In: Journal of development economics, Band 97, Heft 2, S. 450-465
ISSN: 0304-3878
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Working paper
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.
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In: ECB Working Paper No. 1233
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In: Bank of Greece Working Paper No. 101
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In: Bank of Greece Working Paper No. 93
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In: FRB of New York Staff Report No. 929, Rev. September 2023. Previous titles: "Credit, Income, and Inequality" and "Credit and Income"
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In: Swiss Finance Institute Research Paper No. 20-53
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In: Forthcoming, Journal of Business Finance and Accounting
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