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

  • Samer Eid

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

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    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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    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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    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. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
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    4. Douglas W. Diamond & Raghuram G. Rajan, 2003. "Money in a Theory of Banking," NBER Working Papers 10070, National Bureau of Economic Research, Inc.
    5. John Y. Campbell & John H. Cochrane, 1994. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," CRSP working papers 412, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    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. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    8. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
    9. Altunbas, Yener & Gambacorta, Leonardo & Marqués-Ibáñez, David, 2009. "Bank risk and monetary policy," Working Paper Series 1075, European Central Bank.
    10. Giovanni Dell'Ariccia & Robert Marquez & Luc Laeven, 2010. "Monetary Policy, Leverage, and Bank Risk-Taking," IMF Working Papers 10/276, International Monetary Fund.
    11. 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.
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