Impact of off-balance Sheet Banking on the Bank Lending Channel of Monetary Transmission

Banks with transferring funds from a surplus to a deficit economic units, have a unique role in transmission mechanism of monetary policy through the bank lending channel. The bank lending channel is focused on the supply of credit and banking network loans. When banks faced with a contraction monetary policy cannot fully replace their lending funds and are forced to moderate their lending behavior and reduce the supply of loans. This loan supply reduction increases credit costs and adversely influences on real economic activities. So, the bank lending channel is the monetary policy transmission channel which transfers effects of this policy to the real sectors of the economy.Monetary policy can be effective at the Bank's non-intermediary activities Off balance sheet items are included in Bank's non-intermediary activities These items can create liquidity like as the bank's balance sheet items. We use panel data of banking network (18 banks) in the period 2006 to 2013. This paper investigates positive relationship between off balance sheet items and bank lending. Moreover, the monetary policy impacts on bank lending channel through these items are considered within this study. According to the results, off-balance sheet items weaken policy effects on bank lending. Also, items can effect on customers to banking and therefore, reduce effectiveness and efficiency of monetary policy.