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Shadow banks and the risk-taking channel of monetary policy transmission in the euro area

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  • Wischnewsky Arina

    (26595 University of Trier, Department of Economics, D-54286 Trier, Germany)

  • Neuenkirch Matthias

    (26595 University of Trier, Department of Economics, D-54286 Trier, Germany)

Abstract

We provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through an increase in shadow banks’ total asset growth and their risk assets ratio. Our dataset covers the period 2000Q1–2018Q3 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, the aforementioned two indicators for the shadow banking sector. Based on vector autoregressive models for the euro area as a whole, we find a portfolio reallocation effect towards riskier assets and evidence for a general expansion of assets. Both effects last for roughly six quarters in the case of conventional monetary policy shocks, whereas for unconventional monetary policy shocks the responses are significant for two quarters only. Country-specific as well as sector-specific estimations confirm these findings for most of the euro area countries and all non-bank types, but also reveal some heterogeneity in the reaction of financial institutions.

Suggested Citation

  • Wischnewsky Arina & Neuenkirch Matthias, 2021. "Shadow banks and the risk-taking channel of monetary policy transmission in the euro area," German Economic Review, De Gruyter, vol. 22(1), pages 97-128, February.
    • Handle: RePEc:bpj:germec:v:22:y:2021:i:1:p:97-128:n:4
    DOI: 10.1515/ger-2019-0097
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    Cited by:

    1. Jin, Xisong & Nadal De Simone, Francisco, 2020. "Monetary policy and systemic risk-taking in the Euro area investment fund industry: A structural factor-augmented vector autoregression analysis," Journal of Financial Stability, Elsevier, vol. 49(C).
    2. Jiang, Hai & Yuan, Chao, 2022. "Monetary policy, capital regulation and bank risk-taking：Evidence from China," Journal of Asian Economics, Elsevier, vol. 82(C).
    3. Nikolay Hristov & Oliver Hülsewig & Johann Scharler, 2021. "Unconventional Monetary Policy Shocks in the Euro Area and the Sovereign-Bank Nexus," International Journal of Central Banking, International Journal of Central Banking, vol. 17(3), pages 337-383, September.
    4. Hamdi Jbir & Cornel Oros & Alexandra Popescu, 2024. "Macroprudential policy and financial system stability: an aggregate study," Empirical Economics, Springer, vol. 66(5), pages 1941-1973, May.
    5. Kabundi, Alain & De Simone, Francisco Nadal, 2022. "Euro area banking and monetary policy shocks in the QE era," Journal of Financial Stability, Elsevier, vol. 63(C).
    6. Manuel Walz & Matthias Neuenkirch, 2021. "Der Digitale Euro: Ein Zahlungsmittel für die Zukunft?," Research Papers in Economics 2021-05, University of Trier, Department of Economics.
    7. Hohberger, Stefan & Priftis, Romanos & Vogel, Lukas, 2020. "The distributional effects of conventional monetary policy and quantitative easing: Evidence from an estimated DSGE model," Journal of Banking & Finance, Elsevier, vol. 113(C).
    8. Oliver Hülsewig & Horst Rottmann, 2022. "Euro Area Periphery Countries' Fiscal Policy and Monetary Policy Surprises," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(3), pages 544-568, June.
    9. Lazopoulos, Ioannis & Gabriel, Vasco, 2019. "Policy mandates and institutional architecture," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 122-134.
    10. Bednarek, Peter & Briukhova, Olga & Ongena, Steven & Westernhagen, Natalja v., 2025. "Effects of bank capital requirements on lending by banks and non-bank financial institutions," Journal of Financial Intermediation, Elsevier, vol. 63(C).
    11. Xuanling Ma & Meng Ji, 2023. "Analysis of the risk transmission mechanism of monetary policy in the monetary and financial service sectors from the perspective of asset-liability management," PLOS ONE, Public Library of Science, vol. 18(10), pages 1-16, October.
    12. Li Kang & Rong Guo & Mei Zhang, 2019. "The Risk-Taking Channel and Monetary Transmission Mechanisms in China," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(12), pages 1358-1367, December.
    13. Tayyaba Mukhtar & Muhammad Zeeshan Younas, 2019. "Monetary Policy Transmission Mechanism of Pakistan: Evidence from Bank Lending and Asset Price Channels," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 7(3), pages 121-139, September.
    14. Czudaj, Robert L., 2020. "Is the negative interest rate policy effective?," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 75-86.
    15. Sanfilippo-Azofra, Sergio & Cantero-Saiz, María & Torre-Olmo, Begoña & Bringas-Fernández, Violeta, 2025. "The bank lending channel and the deposit channel of monetary policy: an empirical analysis of Eurozone banks," Finance Research Letters, Elsevier, vol. 81(C).
    16. Alexandros Skouralis, 2023. "The Role of Systemic Risk Spillovers in the Transmission of Euro Area Monetary Policy," Open Economies Review, Springer, vol. 34(5), pages 1079-1106, November.
    17. Wischnewsky Arina & Neuenkirch Matthias, 2021. "Shadow banks and the risk-taking channel of monetary policy transmission in the euro area," German Economic Review, De Gruyter, vol. 22(1), pages 97-128, February.
    18. Claudio Borio, 2019. "Central banking in challenging times," BIS Working Papers 829, Bank for International Settlements.

    More about this item

    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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