Banks Claims on Private Sector and Monetary Policy Channel

Banking industry is the main channel of monetary policy. As emphasized by the information-theoretic approach, a central function of banks was to screen and monitor borrowers, thereby overcoming inform a- tion and incentive problems. By developing expertise in gathering relevant information, as well as b y main- taining ongoing relationships with customers, banks could control their business. Since 2000, Bank I ndone- sia started to implement a new framework of monetary policy and was initially applied in July 2005. The impact of new monetary policy framework was investigated within the banking capital adequacy regula- tion and economics framework. We found that stock exchange index (IHSG) was positive and significant at 1%. Other variables such as FINSHARE, GM2, NPL, CAR, BIRATE were negative and significant. In genera l, we concluded that banking sector claims on the private sector was one of important monetary policy channels. Key words : monetary policy, private claims, bank capita