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The Risk-Taking Channel and Monetary Transmission Mechanism in Colombia

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  • Martha López P.

    ()

  • Fernando Tenjo G.

    ()

  • Héctor Zárate Solano

    ()

Abstract

The recent financial crisis has brought to the forefront the need of a better understanding of the transmission mechanisms of monetary policy. The main step forward in this direction has drawn on work aimed at stressing the role of the financial sector in this transmission. Particular emphasis has been place on how policy actions impact risk perceptions and attitudes of banks and other financial institutions, leading to shifts in the supply of credit. Along these lines, and based on evidence from Colombia, the present paper finds a significant link between low interest rates and banks’ risk taking based on evidence from Colombia. Lower interest rates raise the probability of default on new loans but reduce that on outstanding loans. Furthermore, this channel of policy transmission depends on some bank, loan and borrower characteristics, as well on macroeconomic conditions such as the rate of growth of the economy.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 616.

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Handle: RePEc:bdr:borrec:616

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Related research

Keywords: Monetary policy; lending standards; risk taking; duration analysis; accelerated failure time models. Classification JEL: E44; G21; L14;

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References

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  1. Yener Altunbas & Leonardo Gambacorta & David Marqués-Ibáñez, 2010. "Does monetary policy affect bank risk-taking?," Working Paper Series 1166, European Central Bank.
  2. Ioannidou, V. & Ongena, S. & Peydro, J.L., 2009. "Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment," Discussion Paper 2009-31 S, Tilburg University, Center for Economic Research.
  3. Altunbas, Yener & Gambacorta, Leonardo & Marques-Ibanez, David, 2010. "Bank risk and monetary policy," Journal of Financial Stability, Elsevier, vol. 6(3), pages 121-129, September.
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Cited by:
  1. Martha López & Fernando Tenjo & Héctor Zárate, 2012. "The Risk-Taking Channel in Colombia Revisited," Borradores de Economia 690, Banco de la Republica de Colombia.
  2. Ekin Ayse Ozsuca & Elif Akbostanci, 2012. "An Empirical Analysis of the Risk Taking Channel of Monetary Policy in Turkey," ERC Working Papers 1208, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.

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