The Bank Lending Channel Revisited

Piti Disyatat

Bank of Thailand

July, 14 2011

Journal of Money, Credit and Banking, Vol. 43, Issue 4, pp. 711-734, June 2011

A central proposition in research on the role of banks in the transmission mechanism is that monetary policy imparts a direct impact on deposits and that deposits act as the driving force of bank lending. This paper argues that the emphasis on policy-induced changes in deposits is misplaced. A reformulation of the bank lending channel is proposed that works primarily through the impact of monetary policy on banks’ balance sheet strength and risk perception. Such a recasting implies, contrary to conventional wisdom, that greater reliance on market-based funding enhances the importance of the channel.

Keywords: monetary policy, bank lending channel, bank capital, credit, money

JEL Classification: E40, E44, E51, E52, E58

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Date posted: July 16, 2011  

Suggested Citation

Disyatat, Piti, The Bank Lending Channel Revisited (July, 14 2011). Journal of Money, Credit and Banking, Vol. 43, Issue 4, pp. 711-734, June 2011 . Available at SSRN: http://ssrn.com/abstract=1885297

Contact Information

Piti Disyatat (Contact Author)
Bank of Thailand ( email )
273 Samsen Road
Bangkhunphrom, Bangkok 10200
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