Monetary Policy of Low Interest Rates and Bank Stability: The Role of Corporate Governance
40 Pages Posted: 29 Jan 2020
Date Written: January 4, 2020
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: Suggested Citation