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Monetary policy, risk-taking channel and income structure: an empirical assessment of the French banking system

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  • Samer Eid

    (UP1 UFR02 - Université Paris 1 Panthéon-Sorbonne - UFR d'Économie - Université Panthéon-Sorbonne - Paris I)

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    Abstract

    According to some recent empirical papers, periods of low interest rates would favor a risk-taking channel of monetary policy whereby bank risk-appetite and risk-taking behavior would be stronger after. Several theoretical explanations exist to this phenomenon, such as the managerial compensation schemes linked to fixed objectives, the procyclical valuation methods of assets, income and cash flows, or the abundant liquidity at a low cost. This paper studies the risk behavior of the main French banks during a recent period of low interest rates (1998-2008) and concludes to the existence of a risk-taking channel. In addition, our analysis suggests that liquid banks are more prone to risk-taking. We also highlight a higher risk transmission for banks relying more on fees and commission income.

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    File URL: http://dumas.ccsd.cnrs.fr/docs/00/64/37/15/PDF/EID_Samer.pdf
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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number dumas-00643715.

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    Date of creation: 30 Jun 2011
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    Handle: RePEc:hal:journl:dumas-00643715

    Note: View the original document on HAL open archive server: http://dumas.ccsd.cnrs.fr/dumas-00643715/en/
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    Related research

    Keywords: bank risk; risk-taking channel; monetary policy; income structure; liquidity; French banks.;

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    1. Lepetit, Laetitia & Nys, Emmanuelle & Rous, Philippe & Tarazi, Amine, 2008. "Bank income structure and risk: An empirical analysis of European banks," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1452-1467, August.
    2. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
    3. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
    4. Delis, Manthos D. & Kouretas, Georgios P., 2011. "Interest rates and bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 840-855, April.
    5. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    6. Danielsson, Jon & Shin, Hyun Song & Zigrand, Jean-Pierre, 2004. "The impact of risk regulation on price dynamics," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 1069-1087, May.
    7. Yener Altunbas & Leonardo Gambacorta & David Marqués-Ibáñez, 2009. "Bank risk and monetary policy," Temi di discussione (Economic working papers) 712, Bank of Italy, Economic Research and International Relations Area.
    8. Douglas W. Diamond & Raghuram G. Rajan, 2003. "Money in a Theory of Banking," NBER Working Papers 10070, National Bureau of Economic Research, Inc.
    9. DellAriccia, Giovanni & Laeven, Luc & Marquez, Robert, 2011. "Monetary Policy, Leverage, and Bank Risk-taking," CEPR Discussion Papers 8199, C.E.P.R. Discussion Papers.
    10. John Y. Campbell & John H. Cochrane, 1995. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," NBER Working Papers 4995, National Bureau of Economic Research, Inc.
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