Effect of Monetary Policy on Commercial Banks Across Different Business Conditions

30 Pages Posted: 1 Jul 2015

See all articles by Syed M. Harun

Syed M. Harun

Texas A&M University - Kingsville

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Tarek S. Zaher

Indiana State University - Scott College of Business

Date Written: June 30, 2015

Abstract

The objective of the paper is to investigate whether the stock price reactions of commercial banks to monetary policy actions are dependent on the state of the economy. The results indicate that monetary policy actions have asymmetric effects on the returns of commercial banks across different monetary policy and business environments. The asymmetric effects can primarily be attributed to the asymmetric effects of monetary policy on discount rates across different monetary and business environments. We also observe that the impact of monetary policy on the returns of commercial banks is affected by bank-specific characteristics. Bank size, leverage and profitability play an important role in explaining the cross-sectional variation in bank returns as a result of monetary policy changes. We find that cross-sectional bank-specific characteristics affect the bank returns asymmetrically as a result of monetary policy changes across different business conditions. The results suggest that the effectiveness of monetary policy depends on the states of the economy.

Keywords: Monetary policy; commercial bank; business condition

JEL Classification: E52, E58, G14, G21

Suggested Citation

Harun, Syed M. and Hassan, M. Kabir and Zaher, Tarek, Effect of Monetary Policy on Commercial Banks Across Different Business Conditions (June 30, 2015). Multinational Finance Journal, Vol. 9, No. 1/2, p. 99-128, 2005, Available at SSRN: https://ssrn.com/abstract=2625113

Syed M. Harun (Contact Author)

Texas A&M University - Kingsville ( email )

CBA #212
700 Unversity Blvd.
Kingsville, TX 78363
United States

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Tarek Zaher

Indiana State University - Scott College of Business ( email )

800 Sycamore Street
Terre Haute, IN 47809
United States

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