How deviations from FOMC's monetary policy decisions from a benchmark monetary policy rule affect bank profitability

evidence from U.S. banks

Nicholas Apergis, Chi Keung Marco Lau

Research output: Contribution to journalArticle

Abstract

Purpose: This paper aims to provide fresh empirical evidence on how Federal Open Market Committee (FOMC) monetary policy decisions from a benchmark monetary policy rule affect the profitability of US banking institutions.
Design/methodology/approach: It thereby provides a link between the literature on central bank monetary policy implementation through monetary rules and banks’ profitability. It uses a novel data set from 11,894 US banks, spanning the period 1990 to 2013.
Findings: The empirical findings show that deviations of FOMC monetary policy decisions from a number of benchmark linear and non-linear monetary (Taylor type) rules exert a negative and statistically significant impact on banks’ profitability.
Originality/value: The results are expected to have substantial implications for the capacity of banking institutions to more readily interpret monetary policy information and accordingly to reshape and hedge their lending behaviour. This would make the monetary policy decision process less noisy and, thus, enhance their capability to attach the correct weight to this information.
Original languageEnglish
Pages (from-to)354-371
Number of pages18
JournalJournal of Financial Economic Policy
Volume9
Issue number4
DOIs
Publication statusPublished - 1 Oct 2017
Externally publishedYes

Fingerprint

Bank profitability
Benchmark
Monetary policy committees
Monetary policy
Monetary policy rules
Banking
Deviation
Monetary policy implementation
Design methodology
Hedge
Profitability
Monetary rules
Lending
Empirical evidence
Decision process
Central bank

Cite this

@article{85735062f0124a2db52dd3a159731657,
title = "How deviations from FOMC's monetary policy decisions from a benchmark monetary policy rule affect bank profitability: evidence from U.S. banks",
abstract = "Purpose: This paper aims to provide fresh empirical evidence on how Federal Open Market Committee (FOMC) monetary policy decisions from a benchmark monetary policy rule affect the profitability of US banking institutions.Design/methodology/approach: It thereby provides a link between the literature on central bank monetary policy implementation through monetary rules and banks’ profitability. It uses a novel data set from 11,894 US banks, spanning the period 1990 to 2013.Findings: The empirical findings show that deviations of FOMC monetary policy decisions from a number of benchmark linear and non-linear monetary (Taylor type) rules exert a negative and statistically significant impact on banks’ profitability.Originality/value: The results are expected to have substantial implications for the capacity of banking institutions to more readily interpret monetary policy information and accordingly to reshape and hedge their lending behaviour. This would make the monetary policy decision process less noisy and, thus, enhance their capability to attach the correct weight to this information.",
keywords = "Banks, Central banks and their policies",
author = "Nicholas Apergis and Lau, {Chi Keung Marco}",
year = "2017",
month = "10",
day = "1",
doi = "10.1108/JFEP-02-2017-0008",
language = "English",
volume = "9",
pages = "354--371",
journal = "Journal of Financial Economic Policy",
issn = "1757-6385",
publisher = "Emerald Group Publishing Ltd.",
number = "4",

}

TY - JOUR

T1 - How deviations from FOMC's monetary policy decisions from a benchmark monetary policy rule affect bank profitability

T2 - evidence from U.S. banks

AU - Apergis, Nicholas

AU - Lau, Chi Keung Marco

PY - 2017/10/1

Y1 - 2017/10/1

N2 - Purpose: This paper aims to provide fresh empirical evidence on how Federal Open Market Committee (FOMC) monetary policy decisions from a benchmark monetary policy rule affect the profitability of US banking institutions.Design/methodology/approach: It thereby provides a link between the literature on central bank monetary policy implementation through monetary rules and banks’ profitability. It uses a novel data set from 11,894 US banks, spanning the period 1990 to 2013.Findings: The empirical findings show that deviations of FOMC monetary policy decisions from a number of benchmark linear and non-linear monetary (Taylor type) rules exert a negative and statistically significant impact on banks’ profitability.Originality/value: The results are expected to have substantial implications for the capacity of banking institutions to more readily interpret monetary policy information and accordingly to reshape and hedge their lending behaviour. This would make the monetary policy decision process less noisy and, thus, enhance their capability to attach the correct weight to this information.

AB - Purpose: This paper aims to provide fresh empirical evidence on how Federal Open Market Committee (FOMC) monetary policy decisions from a benchmark monetary policy rule affect the profitability of US banking institutions.Design/methodology/approach: It thereby provides a link between the literature on central bank monetary policy implementation through monetary rules and banks’ profitability. It uses a novel data set from 11,894 US banks, spanning the period 1990 to 2013.Findings: The empirical findings show that deviations of FOMC monetary policy decisions from a number of benchmark linear and non-linear monetary (Taylor type) rules exert a negative and statistically significant impact on banks’ profitability.Originality/value: The results are expected to have substantial implications for the capacity of banking institutions to more readily interpret monetary policy information and accordingly to reshape and hedge their lending behaviour. This would make the monetary policy decision process less noisy and, thus, enhance their capability to attach the correct weight to this information.

KW - Banks

KW - Central banks and their policies

UR - https://www.scopus.com/record/display.uri?eid=2-s2.0-85032964788&origin=resultslist&sort=plf-f&src=s&st1=How+deviations+from+FOMC%27s+monetary+policy+decisions+from+a+benchmark+monetary+policy+rule+affect+bank+profitability&st2=&sid=c8e299a3dfa6cedfb9cb337ec9e95d06&sot=b&sdt=b&sl=131&s=TITLE-ABS-KEY%28How+deviations+from+FOMC%27s+monetary+policy+decisions+from+a+benchmark+monetary+policy+rule+affect+bank+profitability%29&relpos=0&citeCnt=0&searchTerm=

U2 - 10.1108/JFEP-02-2017-0008

DO - 10.1108/JFEP-02-2017-0008

M3 - Article

VL - 9

SP - 354

EP - 371

JO - Journal of Financial Economic Policy

JF - Journal of Financial Economic Policy

SN - 1757-6385

IS - 4

ER -