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How do banks respond to increased funding uncertainty?

Abstract:

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...

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Publication status:
Published

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Publisher:
University of Oxford
Series:
Department of Economics Discussion Paper Series
Publication date:
2010-03-01
Paper number:
481
Keywords:
Pubs id:
1143944
Local pid:
pubs:1143944
Deposit date:
2020-12-15

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