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Risk-taking channel, bank lending channel and the “paradox of credibility”

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  • Montes, Gabriel Caldas
  • Peixoto, Gabriel Barros Tavares

Abstract

If from one hand credibility is important for the conduct of monetary policy, on the other hand, greater credibility may eventually stimulate the creation of bubbles in the credit market and asset prices through the risk-taking channel, and as a consequence, bring to reality the “paradox of credibility”. The “paradox of credibility” is the new dilemma posed to central banking in the effort to conciliate monetary policy and banking regulation under inflation targeting regimes. Thus, the present work aims to: (i) analyze the impact of central bank actions and the macroeconomic environment on the risk perception of banks, and; (ii) analyze the influence of this risk perception of banks on the credit spread, considering both the credit channel and the risk-taking channel. Based on an econometric analysis, the work provides evidence about: (i) the “paradox of credibility” and the risk-taking channel; (ii) the influence of monetary policies on the risk perception of banks and, as a consequence, on the credit spread; (iii) the procyclical nature of banks in relation to economic activity, and; (iv) the adherence of the countercyclical indicator (called credit gap) proposed in Basel III for the Brazilian case.

Suggested Citation

  • Montes, Gabriel Caldas & Peixoto, Gabriel Barros Tavares, 2014. "Risk-taking channel, bank lending channel and the “paradox of credibility”," Economic Modelling, Elsevier, vol. 39(C), pages 82-94.
  • Handle: RePEc:eee:ecmode:v:39:y:2014:i:c:p:82-94
    DOI: 10.1016/j.econmod.2014.02.023
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    Citations

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    Cited by:

    1. José Américo Pereira Antunes & Claudio Oliveira De Moraes & Gabriel Caldas Montes, 2016. "Bank Regulatory Capital, Risk-Taking Channel And Monetary Policy: Evidence From An Inflation Targeting Emerging Economy," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 042, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Montes, Gabriel Caldas & Tavares, Debora Pereira & Guillén, Osmani Teixeira de Carvalho, 2013. "Canal de Transmissão da Política Monetária Por Meio dos Seguros Contratados Pelo Setor Bancário," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 67(3), September.
    3. Fazio, Dimas Mateus & Silva, Thiago Christiano & Tabak, Benjamin Miranda & Cajueiro, Daniel Oliveira, 2018. "Inflation targeting and financial stability: Does the quality of institutions matter?," Economic Modelling, Elsevier, vol. 71(C), pages 1-15.
    4. Gilbert COLLETAZ & Grégory LEVIEUGE & Alexandra POPESCU, 2016. "Monetary Policy and Long-Run Risk-Taking," LEO Working Papers / DR LEO 2409, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    5. de Moraes, Claudio Oliveira & Montes, Gabriel Caldas & Antunes, José Américo Pereira, 2016. "How does capital regulation react to monetary policy? New evidence on the risk-taking channel," Economic Modelling, Elsevier, vol. 56(C), pages 177-186.
    6. Doumpos, Michael & Gaganis, Chrysovalantis & Pasiouras, Fotios, 2015. "Central bank independence, financial supervision structure and bank soundness: An empirical analysis around the crisis," Journal of Banking & Finance, Elsevier, vol. 61(S1), pages 69-83.

    More about this item

    Keywords

    Risk-taking channel; Credit channel; Paradox of credibility; Monetary policy;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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