Non-bank finance and monetary policy transmission in Asia

Beirne, John / Nuobu Renzhi / Ulrich Volz
External Publications (2023)

in: Emerging Markets Finance and Trade 59 (6), 1976-1991

DOI: https://doi.org/10.1080/1540496X.2022.2156279

Focusing on Asian economies over the period 2006 to 2019, we find that while non-bank finance appears to complement rather than substitute credit provision by the traditional banking sector, weaker regulatory quality is an important driving factor. Moreover, while we find that central bank policy rates countercyclically affect credit provision by non-banks, impulse responses to monetary policy shocks with and without non-bank finance indicate that the effectiveness of monetary policy as a transmission channel to GDP growth, inflation, house prices, and traditional bank credit is weakened in the presence of non-bank finance. Our paper has implications for monetary policy implementation, potentially incorporating non-banks into central bank operations and liquidity provision, as well as for financial supervisors on mitigating regulatory arbitrage.

About the author

Volz, Ulrich

Economist