Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153667
Authors: 
Brissimis, Sophocles N.
Delis, Manthos D.
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1233
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.
Subjects: 
Bank heterogeneity
bank performance
monetary policy
Risk-taking
JEL: 
E44
E52
G21
C14
Document Type: 
Working Paper

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