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Impact of off-balance sheet banking on the bank lending channel of monetary transmission: Evidence from South Asia

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  • Perera, Anil
  • Ralston, Deborah
  • Wickramanayake, J.

Abstract

Based on a panel data set for 114 South Asian commercial banks, we find that off-balance sheet banking reduces the effectiveness of the bank lending channel of monetary transmission. That is, banks with high exposure to off-balance sheet activities are able to insulate their loan supply against a monetary policy shock thus creating a buffering effect on monetary transmission. We also suggest that these effects are substantial for small, highly-liquid and well-capitalised banks. The buffering effect of off-balance sheet banking on monetary transmission raises important policy issues, particularly with regard to the effectiveness of monetary policy and the definitions of monetary aggregates.

Suggested Citation

  • Perera, Anil & Ralston, Deborah & Wickramanayake, J., 2014. "Impact of off-balance sheet banking on the bank lending channel of monetary transmission: Evidence from South Asia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 195-216.
    • Handle: RePEc:eee:intfin:v:29:y:2014:i:c:p:195-216
    DOI: 10.1016/j.intfin.2013.12.008
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    2. Mr. Manuk Ghazanchyan, 2014. "Unraveling the Monetary Policy Transmission Mechanism in Sri Lanka," IMF Working Papers 2014/190, International Monetary Fund.
    3. Wu, Dan & Li, Rong & Li, Yingting, 2024. "Impact of Off-Balance-Sheet Activities on the Effectiveness of Monetary Policy," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).
    4. Cheng, Xiaoqiang & Wang, Yabin, 2022. "Shadow banking and the bank lending channel of monetary policy in China," Journal of International Money and Finance, Elsevier, vol. 128(C).
    5. An, Ping & Yu, Mengxuan, 2018. "Neglected part of shadow banking in China," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 211-236.
    6. Perera, Anil & Wickramanayake, J., 2016. "Determinants of commercial bank retail interest rate adjustments: Evidence from a panel data model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 45(C), pages 1-20.
    7. Muhammad Farhan Basheer & Waeibrorheem Waemustafa & Mohamad Helmi Bin Hidthiir & Saira Ghulam Hassan, 2021. "Explaining the endogeneity between the credit risk, liquidity risk, and off-balance sheet activities in commercial banks: a case of South Asian economies," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 14(2), pages 166-187.
    8. Yang, Jun & Shao, Hanhua, 2016. "Impact of bank competition on the bank lending channel of monetary transmission: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 468-481.
    9. Zhang, Jingfang & Malikov, Emir, 2022. "Off-balance sheet activities and scope economies in U.S. banking," Journal of Banking & Finance, Elsevier, vol. 141(C).
    10. Hosseinpour , Ali & Aghababaei , Mohammad Ebrahim, 2018. "The Impact of Provisioning Policies on Non-Performing Loans," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 13(3), pages 343-374, July.
    11. Huu Huan Nguyen & Minh Vu Ngo & Thanh Phuc Nguyen, 2021. "Market structure, state ownership and monetary policy transmission through bank lending channel: Evidence from Vietnamese commercial banks," Economics and Business Letters, Oviedo University Press, vol. 10(3), pages 164-177.

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    More about this item

    Keywords

    Off-balance sheet banking; Bank lending channel; Panel estimates; South Asia;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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