BANK LENDING CHANNEL OF MONETARY POLICY TRANSMISSION MECHANISM IN INDONESIA

Banks have an important role in any economy, acting as a financial intermediary, channeling funds from depositors to debtors. Significant statistical data confirm this function. In developed countries, such as the United States, Germany, and Japan, banks contribute around 40%, 80%, and 90% of external financing, respectively. In Indonesia, more than 80% of external financing comes from the bank loans. Although it is proven that banks have a significant function as financial intermediaries, there is still debate about whether banks have a significant role in the transmission mechanism process. This study examines the bank function of transmitting monetary policy, specifically the bank lending channel. Data have been gathered primarily from bank balance sheets. Specifically, the objectives of this study are (a) to examine whether bank lending channels work in Indonesia or no