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Journal Article

Banks’ Regulatory Buffers, Liquidity Networks and Monetary Policy Transmission

Authors

  • Merkl
  • C.
  • Stolz
  • S.

Publication Date

JEL Classification

E52

Key Words

bank capital channel

bank lending channel

liquidity networks

monetary policy transmission

Based on a quarterly regulatory dataset for German banks from 1999 to 2004, this paper analyzes the effects of banks’ regulatory capital on the transmission of monetary policy in a system of liquidity networks. The dynamic panel regression results provide evidence in favor of the bank capital channel theory. Banks holding less regulatory capital and less interbank liquidity react more restrictively to a monetary tightening than their peers.

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