What explains the lack of monetary policy influence on bank holding companies?

Abstract

In this paper, we investigate how monetary policy innovations affect the equity returns of bank holding companies (BHCs). We also examine bank characteristics to determine what explains the cross-sectional and timeseries variation in the returns' sensitivity. Similar to non-financial firms, we find that only unanticipated components affect bank equity returns; however, this effect is absent in the second half of our sample period. Smaller, less liquid banks have higher sensitivity; a higher ratio of time deposits to total deposits reduces this sensitivity. A higher ratio of non-interest income to total income also reduces this sensitivity, while capital-constrained banks have a higher sensitivity to monetary policy innovations. We argue that a higher dependence on non-interest income and the use of interest rate derivatives together may explain the disappearing influence of monetary policy on these BHCs.

Monetary transmissions mechanism for Islamic capital markets: evidence from Markov switching dynamic regression approach

“…We find few studies that explore the effectiveness of monetary policy for dual banking economies (El Alaoui et al , 2019; Omer, 2019; Selim and Hassan, 2019; Caporale et al , 2020). There are other studies (Hassan et al , 1998; Harun et al , 2005; Harun et al , 2008; Mamun and Hassan, 2014; Ashraf et al , 2017) that explore the monetary policy for other countries. Nevertheless, to the best of our knowledge, no study has made use of dynamic models to assess the association between monetary policy rate and Islamic index prices.…”