The Transmission of Monetary Policy Through Conventional and Islamic Banks

European Banking Center Discussion Paper No. 2011-018

CentER Working Paper Series No. 2011-078

56 Pages Posted: 19 Jul 2011 Last revised: 5 Feb 2013

See all articles by Sajjad Zaheer

Sajjad Zaheer

State Bank of Pakistan - Monetary Policy Department

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Sweder van Wijnbergen

Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2013

Abstract

We investigate the differences in banks’ responses to monetary policy shocks across bank size, liquidity, and type, i.e., conventional versus Islamic, in Pakistan between 2002:II to 2010:I. We find that following a monetary contraction, small banks with liquid balance sheets cut their lending less than other small banks. In contrast large banks maintain their lending irrespective of their liquidity positions. Islamic banks, though similar in size to small banks, respond to monetary policy shocks as large banks. Hence ceteris paribus the credit channel of monetary policy may weaken when Islamic banking grows in relative importance.

Keywords: Monetary policy, Islamic Banking, Pakistan

JEL Classification: E5, G2

Suggested Citation

Zaheer, Sajjad and Ongena, Steven R. G. and van Wijnbergen, Sweder, The Transmission of Monetary Policy Through Conventional and Islamic Banks (February 1, 2013). European Banking Center Discussion Paper No. 2011-018; CentER Working Paper Series No. 2011-078. Available at SSRN: https://ssrn.com/abstract=1888345 or http://dx.doi.org/10.2139/ssrn.1888345

Sajjad Zaheer (Contact Author)

State Bank of Pakistan - Monetary Policy Department ( email )

I.I. Chundrigar Road
Karachi, 74000
Pakistan

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Sweder Van Wijnbergen

Universiteit van Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4011 / 4203 (Phone)
+31-35-624 91 82 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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