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Re-exploring the nexus between monetary policy and banks'risk-taking

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  • Melchisedek Joslem Ngambou Djatche

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur)

Abstract

In this paper, we analyse the link between monetary policy and banks' risk-taking behaviour. Some theoretical and empirical studies show that monetary easing is increasing banks' appetite for risk related to asset valuation and the search for higher yield. However, the low interest rate environment that began in 2010 is casting doubt on these findings. Our study adds to analyses of the monetary risk-taking channel considering non-linearity, especially testing threshold effects in this channel. Using a dataset of US banks, we find that the impact of low interest rates on banks' risk behaviour depends on the previous monetary regime, that is on the deviation of monetary rates from the Taylor rule. We complement the literature on the Taylor rule and provide arguments that extend the use of the Taylor rule by Central Banks to financial stability purposes.

Suggested Citation

  • Melchisedek Joslem Ngambou Djatche, 2019. "Re-exploring the nexus between monetary policy and banks'risk-taking," Post-Print halshs-02144522, HAL.
  • Handle: RePEc:hal:journl:halshs-02144522
    DOI: 10.1016/j.econmod.2019.01.016
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-02144522
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    Cited by:

    1. Alin-Marius ANDRIEŞ & Ioana PLEŞCĂU, 2020. "The Risk-Taking Channel of Monetary Policy: Do Macroprudential Regulation and Central Bank Independence Influence the Transmission of Interest Rates?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-30, September.
    2. Melchisedek Joslem Ngambou Djatche, 2020. "Monetary Policy, Prudential Policy, and Bank's Risk-Taking: A Literature Review," GREDEG Working Papers 2020-40, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    3. Olivier Bruno & Melchisedek Joslem Ngambou Djatche, 2020. "Monetary and Prudential Policy Coordination: impact on Bank's Risk-Taking," GREDEG Working Papers 2020-24, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France, revised Mar 2021.
    4. Dang, Van Dan & Dang, Van Cuong, 2020. "The conditioning role of performance on the bank risk-taking channel of monetary policy: Evidence from a multiple-tool regime," Research in International Business and Finance, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    bank risk-taking; non-dynamic panel threshold model; Monetary policy; financial stability;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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