Objective - Considerable research indicates that during times of prolonged low interest rates, commercial bank lending channels are less effective in conveying the impact of expansionary monetary policies. What is the impact of easy money policy through lending channels of non-banking financial institutions (NBFIs) such as thrift and credit cooperatives (TCCs) and why should this result occur? The objective of this study is to examine the effectiveness of monetary policy through TCC lending channels compared to bank lending channels from 2008 to 2017.

Methodology/Technique - Annual data from 546 TCCs was used in this investigation. A fixed effects model for TCCs and random effect for banks were employed to examine the data. Two models of each institution, one with lagged interaction terms and the other with contemporaneous interaction terms, were tested and compared. The impact of institutional characteristics such as size, deposit, liquidity and equity, and macroeconomic variables such as GDP growth and yield spread, on lending channels were also examined.

Findings - As expected, the results show that TCC lending channels respond positively to prolonged low interest rate policies, whilst bank lending channels respond negatively in one model. Thus, if monetary authorities wish to increase the effectiveness of expansionary monetary policy, TCCs should be allowed to develop under careful supervision.

Novelty - This study concludes that incremental budgeting caused by regulation must be borne by TCCs.

Type of Paper - Empirical.

Keywords: Thrift and Credit Cooperatives (TCCs); Prolonged Low Interest Rates; Transmission Mechanism; Lending Channels; Fixed Effects.

JEL Classification: E44 E51 E52 E58.

URI: http://gatrenterprise.com/GATRJournals/JBER/vol5.2_2.html

DOI: https://doi.org/10.35609/jber.2020.5.2(2)

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