Evidence on the Bank Lending Channel in Ukraine

Abstract

The paper examines evidence for a bank lending channel in Ukraine. We use a panel of bank balance sheet data to estimate the response of bank lending to changes in monetary policy between 1998 and 2003. In particular, we segregate banks according to their asset size, capitalization and liquidity standing to test whether lending responses differ depending on the strength of a bank. The main result is that undercapitalized banks are more affected by a monetary policy change than is an average bank, which is consistent with the bank lending channel hypothesis, suggesting that monetary policy can affect deposits of commercial banks forcing them to change lending, which influences the amount of investment in the economy. ACKNOWLEDGEMENTS

Impact of Credit Expansion on Economic Activity in Turkish Economy

“…On the other hand, a tight monetary policy, as Golodniuk (2006) explains, causes a fall in commercial banks deposits and a reduction of loans which in turn makes firms and households, who depend on bank loans, decrease their spending on durable goods and capital for investment so that real GDP falls.…”

The Bank Lending Channel and Monetary Policy Rules for European Banks: Further Extensions

“…Hence, expansions (contractions) in bank reserves affect output positively (negatively) (Golodniuk, 2006).…”

“…Third, some imperfections must exist in the adjustment of the aggregate price level. That is, monetary policy will exert no effect, if prices can adjust proportionally and quickly with changes in the money supply (Golodniuk, 2006).…”

“…The empirical evidence also supports the idea that well capitalized and liquid banks experience more insulation from monetary policy changes than banks that exhibit low capital and liquidity ratios. In addition, the majority of studies show that small banks do not exhibit more sensitivity to monetary policy shocks than large banks (Peek and Rosengren, 1995;Gambacorta, 2005;Golodniuk, 2006). Other empirical studies, however, find that large banks, in combination with high capitalization ratios, respond less to monetary policy shocks (Kishan and Opiela, 2000).…”

“…Hence, customers encounter large costs to change their banks, because new banks will need to collect costly information about its new customers in the provision of banking services (Golodniuk, 2006). Monetary policy also affects lending with lags, due to long-term contractual commitments.…”