Monetary Policy of Low Interest Rates and Bank Stability: The Role of Corporate Governance

40 Pages Posted: 29 Jan 2020

See all articles by Chrysovalantis Gaganis

Chrysovalantis Gaganis

University of Crete - Faculty of Social Sciences - Department of Economics

Ana Lozano-Vivas

University of Malaga

Panagiota Papadimitri

Portsmouth Business School

Fotios Pasiouras

GSCM-Montpellier Business School

Date Written: January 4, 2020

Abstract

Using a sample of around 340 banks from 48 countries, we examine whether and how corporate governance moderates the relationship between monetary policy interest rates and bank stability. Our results show that low interest rates reduce bank stability and have an adverse effect on risk-adjusted returns, and risk-adjusted capitalization; however, this effect can be mitigated by a bank’s commitment and effectiveness towards following corporate governance principles. The results also show that high values of corporate governance can completely offset the low rates’ adverse effects. Our findings are robust to the use of bank fixed effects and numerous variables that control for bank-specific and country-specific characteristics.

Keywords: Bank stability, Corporate Governance, Interest rates, Monetary policy

JEL Classification: G21, E52, E58

Suggested Citation

Gaganis, Chrysovalantis and Lozano-Vivas, Ana and Papadimitri, Panagiota and Pasiouras, Fotios, Monetary Policy of Low Interest Rates and Bank Stability: The Role of Corporate Governance (January 4, 2020). Available at SSRN: https://ssrn.com/abstract=3513756 or http://dx.doi.org/10.2139/ssrn.3513756

Chrysovalantis Gaganis

University of Crete - Faculty of Social Sciences - Department of Economics ( email )

University Campus
Rethymno, Crete, 74100
Greece

HOME PAGE: http://https://economics.soc.uoc.gr/en/staff/4551/17

Ana Lozano-Vivas (Contact Author)

University of Malaga ( email )

Dept. of Economics
Malaga, MALAGA 29071
Spain
+34952131256 (Phone)

HOME PAGE: http://www.uma.es/departamento-de-teoria-e-historia-economica/info/50200/ana-lozano-vivas/

Panagiota Papadimitri

Portsmouth Business School ( email )

Portsmouth, PO1 3DE
United Kingdom

Fotios Pasiouras

GSCM-Montpellier Business School ( email )

2300, Avenue des Moulins
Montpellier, 34185
France

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