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Financial Stability and Monetary Policy - The case of Brazil

  • Benjamin M. Tabak
  • Marcela T. Laiz
  • Daniel O. Cajueiro

This paper investigates the effects of monetary policy over banks' loans growth and non-performing loans for the recent period in Brazil. We contribute to the literature on bank lending and risk taking channel by showing that during periods of loosening/tightening monetary policy, banks increase/decrease their loans. Moreover, our results illustrate that large, well-capitalized and liquid banks absorb better the effects of monetary policy shocks. We also find that low interest rates lead to an increase in credit risk exposure, supporting the existence of a risk-taking channel. Finally, we show that the impact of monetary policy differs across state-owned, foreign and private domestic banks. These results are important for developing and conducting monetary policy.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps217.pdf
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 217.

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Date of creation: Oct 2010
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Handle: RePEc:bcb:wpaper:217
Contact details of provider: Web page: http://www.bcb.gov.br/?english

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  1. Rodrigo Cifuentes & Gianluigi Ferrucci & Hyun Song Shin, 2005. "Liquidity risk and contagion," Bank of England working papers 264, Bank of England.
  2. Lamont Black & Diana Hancock & Wayne Passmore, 2007. "Bank core deposits and the mitigation of monetary policy," Finance and Economics Discussion Series 2007-65, Board of Governors of the Federal Reserve System (U.S.).
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  5. repec:dgr:kubcen:200775 is not listed on IDEAS
  6. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
  7. Alicia García Herrero & Pedro del Río López, 2003. "Implications of the design of monetary policy for financial stability," Macroeconomics 0304008, EconWPA.
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  12. Jiménez, Gabriel & Ongena, Steven & Peydró, José Luis & Saurina, Jesús, 2007. "Hazardous Times for Monetary Policy: What Do Twenty-Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk?," CEPR Discussion Papers 6514, C.E.P.R. Discussion Papers.
  13. 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.
  14. Tamim Bayoumi & Ola Melander, 2008. "Credit Matters; Empirical Evidenceon U.S. Macro-Financial Linkages," IMF Working Papers 08/169, International Monetary Fund.
  15. Lea Zicchino & Erlend Nier, 2008. "Bank Losses, Monetary Policy and Financial Stability-Evidenceon the Interplay From Panel Data," IMF Working Papers 08/232, International Monetary Fund.
  16. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
  17. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
  18. Piti Disyatat, 2011. "The Bank Lending Channel Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 711-734, 06.
  19. Markus K. Brunnermeier & Lasse Heje Pedersen, 2007. "Market liquidity and funding liquidity," LSE Research Online Documents on Economics 24478, London School of Economics and Political Science, LSE Library.
  20. Ben S. Bernanke, 1993. "Credit in the macroeconomy," Quarterly Review, Federal Reserve Bank of New York, issue Spr, pages 50-70.
  21. Gunji, Hiroshi & Yuan, Yuan, 2010. "Bank profitability and the bank lending channel: Evidence from China," Journal of Asian Economics, Elsevier, vol. 21(2), pages 129-141, April.
  22. Klomp, Jeroen & de Haan, Jakob, 2009. "Central bank independence and financial instability," Journal of Financial Stability, Elsevier, vol. 5(4), pages 321-338, December.
  23. Jiminez, G. & Ongena, S. & Saurina, J., 2007. "Hazardous Times for Monetary Policy : What do Twenty-three Million Bank Loans Say about the Effects of Monetary Policy on Credit Risk?," Discussion Paper 2007-75, Tilburg University, Center for Economic Research.
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