Bank risk-taking, securitization, supervision and low interest rates: Evidence from the euro area and the U.S. lending standards
AbstractUsing a unique dataset of the Euro area and the U.S. bank lending standards, we find that low (monetary policy) short-term interest rates soften standards, for household and corporate loans. This softening – especially for mortgages – is amplified by securitization activity, weak supervision for bank capital and too low for too long monetary policy rates. Conversely, low long-term interest rates do not soften lending standards. Finally, countries with softer lending standards before the crisis related to negative Taylor-rule residuals experienced a worse economic performance afterwards. These results help shed light on the origins of the crisis and have important policy implications. JEL Classification: G01, G21, G28, E44, E5
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1248.
Date of creation: Oct 2010
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Other versions of this item:
- Angela Maddaloni, 2011. "Bank Risk-taking, Securitization, Supervision, and Low Interest Rates: Evidence from the Euro-area and the U.S. Lending Standards," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2121-2165.
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-09 (All new papers)
- NEP-BAN-2010-10-09 (Banking)
- NEP-CBA-2010-10-09 (Central Banking)
- NEP-EEC-2010-10-09 (European Economics)
- NEP-MAC-2010-10-09 (Macroeconomics)
- NEP-MON-2010-10-09 (Monetary Economics)
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