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Impact of monetary shocks on bank loans and deposits: Evidence from banking characteristics in an emerging economy
Download This ArticleMunib Badar
This work is licensed under a Creative Commons Attribution 4.0 International License.
Abstract
This study examines how bank-specific characteristics shape the transmission of monetary policy to commercial banks’ loan and deposit behavior. Using semi-annual panel data from 2001 to 2022, the analysis evaluates how liquidity, size, and capital influence banks’ ability to absorb changes in the policy rate. The findings show that banks respond heterogeneously to monetary shocks, primarily due to differences in their balance sheet structures. Large and small banks experience more pronounced and persistent declines in both deposits and advances following policy tightening, while medium-sized banks exhibit comparatively muted adjustments. The evidence indicates that size is the most decisive factor governing banks’ responsiveness, whereas liquidity plays a stronger role for medium-sized institutions. Capitalization appears to be a weaker differentiator, except for banks with low capital buffers, which display limited insulation against policy changes. Overall, the results suggest that monetary transmission is influenced by structural disparities across banks, with larger and smaller institutions being more sensitive to policy shifts. These insights underscore the need to account for bank heterogeneity when assessing monetary policy effectiveness and designing regulatory frameworks.
Keywords: Monetary Policy Rate, Bank’s Deposit, Bank’s Lending, Bank’s Size, Bank’s Assets, Bank’s Capital
Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.
Declaration of conflicting interests: The Author declares that there is no conflict of interest.
JEL Classification: G32, E44, E51, E52
Received: 08.08.2025
Revised: 04.12.2025; 08.01.2026; 08.02.2026
Accepted: 18.02.2026
Published online: 20.02.2026
How to cite this paper: Badar, M. (2026). Impact of monetary shocks on bank loans and deposits: Evidence from banking characteristics in an emerging economy. Reporting and Accountability Review, 3(1), 8–20. https://doi.org/10.22495/rarv3i1p1
