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September 10, 2025

The Moderating Role of Bank Risk in the Transmission of Monetary Policy Effects on Liquidity Creation Across the Business and Financial Cycles

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Comprehensive analysis shows monetary policy impacts liquidity creation in banks, implicating macroprudential policy adjustments.

High-risk banks experience amplified contractionary impacts during downturns, reducing liquidity creation and profitability.
Low-risk banks demonstrate greater resilience against tightening monetary policies, ensuring better credit availability.
Utilizing data from 9,204 commercial banks across multiple economies, the study employs a two-step system GMM approach.
Insights suggest the integration of macroprudential measures with monetary policy to enhance financial system stability.

Shah et al. (2025) studied this question.

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