IMF Working Papers

How Do Changing U.S. Interest Rates Affect Banks in the Gulf Cooperation Council (GCC) Countries?

Author/Editor:

Olumuyiwa S Adedeji ; Yacoub Alatrash ; Divya Kirti

Publication Date:

December 6, 2019

Electronic Access:

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Summary:

Given their pegged exchange rate regimes, Gulf Cooperation Council (GCC) countries usually adjust their policy rates to match shifting U.S. monetary policy. This raises the important question of how changes in U.S. monetary policy affect banks in the GCC. We use bank-level panel data, exploiting variation across banks within countries, to isolate the impact of changing U.S. interest rates on GCC banks funding costs, asset rates, and profitability. We find stronger pass-through from U.S. monetary policy to liability rates than to asset rates and bank profitability, largely reflecting funding structures. In addition, we explore the role of shifts in the quantity of bank liabilities as policy rates change and the role of large banks with relatively stable funding costs to explain these findings.

Series:

Working Paper No. 2019/268

Subject:

Bank soundness Banking Central bank policy rate Commercial banks Competition Deposit rates Financial institutions Financial markets Financial sector policy and analysis Financial services