Advanced Search
MyIDEAS: Login to save this paper or follow this series

Bank Leverage and Monetary Policy's Risk-Taking Channel

Contents:

Author Info

  • Giovanni Dell'Ariccia
  • Luc Laeven
  • Gustavo Suarez

Abstract

We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=40642
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/143.

as in new window
Length: 41
Date of creation: 06 Jun 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/143

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Banking sector; United States; Monetary policy; Financial stability; Economic models; Interest rates; banks; leverage; risk; bank risk; bank risk taking; tier 1 capital; bank capital; bank size; loan maturity; bank failures; banking system; bank capitalization; bank risk-taking; bank assets; bank location; capital regulation; tier 2 capital; bank of england; bank liquidity; bank profits; banks ’ loan; bank distress; banking systems; prudential regulation; bank owner; monetary authority; bank responses; federal deposit insurance; bank holding company; banking markets; banking industry; bank bailouts; central banking; bank monitoring; bank incentives; bank insolvencies; bank fragility; commercial bank loan; bank credit; bank lending rate; banks ’ balance sheet; banking institutions; banking distress; bank profitability;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series, Institute for Financial Research 27, Institute for Financial Research.
  2. Xavier Freixas & Antoine Martin & David Skeie, 2009. "Bank liquidity, interbank markets, and monetary policy," Staff Reports, Federal Reserve Bank of New York 371, Federal Reserve Bank of New York.
  3. Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
  4. 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, Society for Financial Studies, vol. 24(6), pages 2121-2165.
  5. Altunbas, Yener & Gambacorta, Leonardo & Marqués-Ibáñez, David, 2010. "Does monetary policy affect bank risk-taking?," Working Paper Series, European Central Bank 1166, European Central Bank.
  6. Buch, Claudia M. & Eickmeier, Sandra & Prieto, Esteban, 2014. "In search for yield? Survey-based evidence on bank risk taking," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 43(C), pages 12-30.
  7. Acharya, Viral V & Naqvi, Hassan, 2012. "The Seeds of a Crisis: A Theory of Bank Liquidity and Risk-Taking over the Business Cycle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8851, C.E.P.R. Discussion Papers.
  8. Repullo, Rafael, 2004. "Capital requirements, market power, and risk-taking in banking," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 13(2), pages 156-182, April.
  9. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 147-165, March.
  10. Jeremy C. Stein, 2012. "Monetary Policy as Financial Stability Regulation," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 57-95.
  11. Dell'Ariccia, Giovanni & Marquez, Robert, 2006. "Competition among regulators and credit market integration," Journal of Financial Economics, Elsevier, Elsevier, vol. 79(2), pages 401-430, February.
  12. Donald Morgan & Adam Ashcraft, 2003. "Using Loan Rates to Measure and Regulate Bank Risk: Findings and an Immodest Proposal," Journal of Financial Services Research, Springer, Springer, vol. 24(2), pages 181-200, October.
  13. Claudio Borio & Haibin Zhu, 2008. "Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?," BIS Working Papers 268, Bank for International Settlements.
  14. Cordella, Tito & Yeyati, Eduardo Levy, 2003. "Bank bailouts: moral hazard vs. value effect," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 12(4), pages 300-330, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Beck, Thorsten & Colciago, Andrea & Pfajfar, Damjan, 2014. "The role of financial intermediaries in monetary policy transmission," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 43(C), pages 1-11.
  2. Itai Agur & Maria Demertzis, 2013. "Leaning Against the Wind and the Timing of Monetary Policy," IMF Working Papers 13/86, International Monetary Fund.
  3. Abdullah Yavas, 2013. "Asset Price Bubbles and Monetary Policy," Working Papers, Hong Kong Institute for Monetary Research 102013, Hong Kong Institute for Monetary Research.
  4. Frank Smets, 2014. "Financial Stability and Monetary Policy: How Closely Interlinked?," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 263-300, June.
  5. DellʼAriccia, Giovanni & Laeven, Luc & Marquez, Robert, 2014. "Real interest rates, leverage, and bank risk-taking," Journal of Economic Theory, Elsevier, Elsevier, vol. 149(C), pages 65-99.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:13/143. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.