Title Bank losses, monetary policy and financial stability : evidence on the interplay from panel data / Erlend Nier and Lea Zicchino ; authorized for distribution by Karl Habermeier

Published Washington, D.C. : International Monetary Fund, ©2008 [Washington, District of Columbia] : International Monetary Fund, 2008 ©2008

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Description 1 online resource (32 pages) : illustrations Series IMF working paper ; WP/08/232 IMF working paper ; WP/08/232. Contents I. Introduction; II. Theory and Hypothesis Development; III. Empirical Method and Data; Tables; 1. Summary Statistics; 2. Average of Provision Ratio; IV. Benchmark Results; 3. Benchmark Equation-Determinants of Loan Growth; V. The Effect of Monetary Policy; 4. The Effect of Losses and Monetary Policy-Interactions; 5. The Effect of Capital and Monetary Policy-Interactions; 6. The Effect of Losses, Capital, and Monetary Policy-Interactions; VI. Financial Conditions: Crisis Versus Noncrisis Countries; 7. Determinants of Loan Growth: Crisis Versus Non-crisis Countries 8. Monetary Policy and Banking CrisesVII. Robustness Checks; A. Bank-fixed Effects; 9. Monetary Policy and Banking Crises-Interactions; 10. The Effect of Losses and Monetary Policy-Fixed Effects; B. Endogeneity of Bank-specific Characteristics; VIII. Conclusions; 11. The Effect of Losses and Monetary Policy-Robustness to Endogeneity (Fixed Effects Estimate); 12. Description of Variables and Data Sources; 13. Summary Statistics: Monetary Policy and Banking Crisis Countries; 14. Summary Statistics: Monetary Policy and Banking Crisis Episodes; Appendix; References Summary We assess the extent to which loan losses affect banks' provision of credit to companies and households and examine how feedback from losses to a reduction in credit is affected by the monetary policy stance. Using a unique cross-country dataset of more than 600 banks from 32 countries, we find that losses lead to a reduction in credit and that this effect is more pronounced when either initial bank capitalization is thin or when monetary policy is tight. Moreover, in the face of credit losses, ample capital is more important in cushioning the effect of loan losses when monetary policy is tight. In other words, capital buffers and accommodating monetary policy act as 'substitutes' in offsetting the adverse effect of losses on loan growth. While most of these effects are stronger in crisis times, we find them to operate both in and outside full-blown banking crises. These findings have important implications for the interplay between financial stability and monetary policy, which this paper also draws out Notes At head of title: Monetary and Capital Markets Department "September 2008." Bibliography Includes bibliographical references Notes English Online resource; title from PDF front page (ebrary, viewed February 26, 2014) Subject Bank failures -- Econometric models Monetary policy -- Econometric models Economic stabilization -- Econometric models Bank failures -- Econometric models Economic stabilization -- Econometric models Monetary policy -- Econometric models Form Electronic book Author Zicchino, Lea Habermeier, Karl Friedrich International Monetary Fund. Monetary and Capital Markets Department. ISBN 1462302319 9781462302314 1452767238 9781452767239 9786612841835 6612841834 1451870906 9781451870909 1282841831 9781282841833

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