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

Anil Perera, Deborah Eileen Ralston, Jayasinghe Wickramanayake

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    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.
    Original languageEnglish
    Pages (from-to)195 - 216
    Number of pages22
    JournalJournal of International Financial Markets, Institutions and Money
    Publication statusPublished - 2014

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