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

•We examine the impact of off-balance sheet (OBS) banking on the bank lending channel.•We use bank-level panel data for 114 South Asian commercial banks.•Empirical results reveal that OBS banking weakens the bank lending channel.•Impact is substantial for small, highly-liquid and well-capitalised ba...

Full description

Saved in:
Bibliographic Details
Published in:Journal of international financial markets, institutions & money institutions & money, 2014-03, Vol.29, p.195-216
Main Authors: Perera, Anil, Ralston, Deborah, Wickramanayake, J.
Format: Article
Language:English
Subjects:
Balance sheets
Bank lending channel
Bank loans
Banking
Banks
Commercial banks
Loans
Monetary economics
Monetary policy
Off balance sheet items
Off-balance sheet banking
Panel data
Panel estimates
Short term
South Asia
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:•We examine the impact of off-balance sheet (OBS) banking on the bank lending channel.•We use bank-level panel data for 114 South Asian commercial banks.•Empirical results reveal that OBS banking weakens the bank lending channel.•Impact is substantial for small, highly-liquid and well-capitalised banks. 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.
ISSN:1042-4431
1873-0612
DOI:10.1016/j.intfin.2013.12.008