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Abstract

This thesis consists of empirical essays on four topics in banking and monetary policy. The first chapter, In the dangerzone! Regulatory uncertainty and voluntary capital surpluses, shows that highly discretionary capital regulatory regimes can induce banks to hold higher voluntary capital surpluses, with stronger effects for banks that are closer to their minimum requirements. These precautionary incentives imply that banks might be unwilling to use their Basel III capital buffers to support lending during crises if the regulatory regime is sufficiently uncertain. The second chapter, Analysing monetary policy statements of the Reserve Bank of India, uses natural language processing techniques to examine how monetary policy communication in India has evolved over time. It documents that communication is linguistically complex on average, but has improved significantly recently. It also shows that lengthier statements are linked to higher volatility in financial markets. The third chapter, A fistful of dollars: Transmission of global funding shocks to emerging economies (EMs), proposes money market rates to measure transmission of international liquidity shocks to EMs. It notes that transmission depends on domestic wholesale funding reliance and share of foreign banks, but can be dampened with the use of reserve requirements. The final essay, Risky business: Corporate governance in Indian banks, uses novel data on Indian bank boards to show that shareholders respond significantly to director turnover in public banks. Increasing CEO tenure and age, and decreasing the variable component of pay for CEOs is linked to lower risk-taking in public banks.

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