The risk-taking channel of monetary policy

exploring all avenues

Diana Bonfim, Carla Soares

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

The literature on the risk-taking channel of monetary policy grew quickly, leading to scattered evidence. We examine this channel through different angles, exploring detailed information on loan origination and performance. Ex ante riskier borrowers receive more funding at the extensive margin when interest rates are lower. Ex post performance is independent of the level of interest rates at origination. Still, loans granted in periods of very low and stable interest rates show higher default rates once interest rates start to increase. Risk-taking is stronger among banks with lower capital ratios, suggesting that this channel may be linked to managerial incentives for risk-shifting.
Original languageEnglish
Pages (from-to)1507-1541
JournalJournal of Money, Credit and Banking
Volume50
Issue number7
DOIs
Publication statusPublished - Oct 2018

Keywords

  • risk-taking channel
  • monetary policy transmission
  • credit risk

Cite this

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abstract = "The literature on the risk-taking channel of monetary policy grew quickly, leading to scattered evidence. We examine this channel through different angles, exploring detailed information on loan origination and performance. Ex ante riskier borrowers receive more funding at the extensive margin when interest rates are lower. Ex post performance is independent of the level of interest rates at origination. Still, loans granted in periods of very low and stable interest rates show higher default rates once interest rates start to increase. Risk-taking is stronger among banks with lower capital ratios, suggesting that this channel may be linked to managerial incentives for risk-shifting.",
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The risk-taking channel of monetary policy : exploring all avenues. / Bonfim, Diana; Soares, Carla.

In: Journal of Money, Credit and Banking, Vol. 50, No. 7, 10.2018, p. 1507-1541.

Research output: Contribution to journalArticle

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