Does Central Bank Transparency Influence the Effects of Quantitative Easing on Banking System Vulnerability?

Abstract

After the global financial crisis, central banks used unconventional monetary policies, including quantitative easing (QE), to restore financial stability. Although several studies have analyzed the effects of these measures on financial markets, limited attention has been given to how central bank transparency influences the stability of commercial banks operating under these conditions. This study examines the impact of central bank transparency on national banking system vulnerability during periods of QE across eight economies from 2013 to 2019. Using a dynamic two-step generalized method of moments model based on bank-level data, the analysis includes bank-specific variables, monetary policy indicators, macroeconomic determinants, central bank characteristics, and structural factors of the banking sector and applies a fixed-effects panel regression model. The findings show that transparency moderates the effect of QE on bank vulnerability and strengthens banking system resilience. By emphasizing the role of central bank transparency as a key element of monetary policy, this research provides useful evidence for policymakers seeking to improve the effectiveness and credibility of unconventional monetary measures in different banking environments.