DOES INTERNATIONAL MONETARY POLICY INFLUENCE THE BANK RISK? EVIDENCE FROM INDIA

Abstract

This study empirically examines the impact of international monetary policy on bank risk in the Indian context. Using annual data from 64 banks and employing panel OLS and GMM techniques, this study finds that: (1) a contractionary international monetary policy increases bank risk; (2) an appreciation of the domestic exchange rate induces bank riskiness; (3) the domestic monetary policy affects bank risk through the “search for yield” channel; and (4) the international monetary policy is relatively significant in explaining the bank riskiness in the post-global financial crisis period.