The effect of US monetary policy on Russian Banks in a low interest rate environment

Abstract

This paper studies the cross-border transmission of US monetary policy to Russia in 2000–2019 via its effect Russian banks' activities in a low interest rate environment compared with normal times. Specifically, we investigate the dynamic responses of lending, funding, and risk taking. The main finding is that, in normal times, the dynamic responses of dependent variables of interest are consistent with the prevalence of the international bank lending channel, whereas in a low interest rate environment, the patterns differ for different indicators: in some instances, the dynamic effect of interest is attenuated as compared with normal times, while in others, it is reinforced. The inward transmission of US monetary policy works predominantly through the activities of foreign bank subsidiaries.