International monetary spillovers in bank profitability and risk-taking

Abstract

This article explores the impact of monetary policy changes on bank profitability and risk-taking in developed countries and BRICS. Utilizing a comprehensive dataset including country- and bank-level data from the Eurozone, the USA, the UK, Japan, and the BRICS, we distinguish between domestic and international monetary policy effects. Our analysis reveals that a monetary policy tightening increases bank profitability and reduces bank risk-taking domestically. Furthermore, we find that central bank decisions in developed countries have notable spillover effects on bank profitability and risk-taking in BRICS banks. These international spillovers operate through an internal funding channel, wherein global parent banks exchange funds with their affiliates.