The dynamic of bank lending channel

Basel regulatory constraint

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

This article analyzes the impact of monetary policy on bank behavior under the Basel I regulatory framework using a dynamic model with monopolistic competition. There are two main objectives. First, we theoretically predict the dynamic model of bank lending channels under the Basel I regulatory constraint. Second, we empirically analyze the situation in Malaysia by using panel data on 23 commercial banks in the period of 1999 to 2007 by using General Method of Moments. The empirical results show that market rates on loans and policy rates are important influences on average rates of banks' loans. This has an implication that Malaysian banks have the power to set their own prices on loans as they are influenced by the change in the market rate and policy rate. We also have proven that the previous period of spread risk weighted loans and securities is statistically significant and correlated with the average loan rate, whereas risk weighted securities is also statistically significant and correlated with the average time deposit rate in both periods. This shows that the role of risk-weighted assets under the Basel I is important in influencing the optimal rates on loans and time deposits.

Original languageEnglish
Pages (from-to)606-613
Number of pages8
JournalEconomic Modelling
Volume31
Issue number1
DOIs
Publication statusPublished - Mar 2013

Fingerprint

Bank lending channel
Basel
Loans
Method of moments
Deposits
Bank loans
Regulatory framework
Deposit rate
Commercial banks
Loan rates
Panel data
Monetary policy
Malaysia
Empirical results
Monopolistic competition
Assets

Keywords

  • Bank lending channel
  • Dynamic model
  • Monopolistic competition
  • Transmission mechanism

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

The dynamic of bank lending channel : Basel regulatory constraint. / Said, Fathin Faizah.

In: Economic Modelling, Vol. 31, No. 1, 03.2013, p. 606-613.

Research output: Contribution to journalArticle

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