This paper presents a simple model of risk-averse banks that face uncertainty over funding conditions in the money market. It shows when increased funding uncertainty causes interest rates on loans and deposits to rise, while bank lending and bank profitability fall. It also finds that funding uncertainty typically dampens the rate of pass-through from changes in the central bank’s policy rate to market interest rates. These results help explain observed bank behaviour and reduced effectiv...Expand abstract
- Discussion paper series
- Publication date:
- Local pid:
- Copyright date:
How do banks respond to increased funding uncertainty?
Views and Downloads
If you are the owner of this record, you can report an update to it here: Report update to this record