How Do Changing U.S. Interest Rates Affect Banks in the Gulf Cooperation Council (GCC) Countries?

19 Pages Posted: 22 Jan 2020

See all articles by Olumuyiwa Adedeji

Olumuyiwa Adedeji

International Monetary Fund (IMF)

Yacoub Alatrash

International Monetary Fund (IMF)

Divya Kirti

International Monetary Fund (IMF)

Date Written: December 2019

Abstract

Given their pegged exchange rate regimes, Gulf Cooperation Council (GCC) countries usually adjust their policy rates to match shifting U.S. monetary policy. This raises the important question of how changes in U.S. monetary policy affect banks in the GCC. We use bank-level panel data, exploiting variation across banks within countries, to isolate the impact of changing U.S. interest rates on GCC banks funding costs, asset rates, and profitability. We find stronger pass-through from U.S. monetary policy to liability rates than to asset rates and bank profitability, largely reflecting funding structures. In addition, we explore the role of shifts in the quantity of bank liabilities as policy rates change and the role of large banks with relatively stable funding costs to explain these findings.

Keywords: Central banking and monetary issues, Interest rates on loans, Bank liquidity, Market interest rates, Banking systems, Banks, Gulf Corporation, U.S. Monetary Policy, Competition, WP, GCC country, fund rate, GCC, pass-through, federal fund rate

JEL Classification: G21, E43, E01, E52, O24, E5

Suggested Citation

Adedeji, Olumuyiwa and Alatrash, Yacoub and Kirti, Divya, How Do Changing U.S. Interest Rates Affect Banks in the Gulf Cooperation Council (GCC) Countries? (December 2019). IMF Working Paper No. 19/268. Available at SSRN: https://ssrn.com/abstract=3523141

Olumuyiwa Adedeji (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Yacoub Alatrash

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Divya Kirti

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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