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Monetary Policy and Risk Taking Behavior of Banks in Pakistan

Author

Listed:
  • Shabbir, Safia
  • Rana, Faisal
  • Iqbal, Javed

Abstract

Using quarterly data on commercial banks operating in Pakistan over a period of 2002-2014, this study finds that banking sector in Pakistan takes more risk during ease and infection ratio increases with a rise in policy rate. In addition, with lower return on asset and small capital base, banks might turn fragile and be vulnerable to solvency risk. Observing the bank characteristics we observe that small size banks with high liquidity and strong capital base are more likely to carry risk during monetary ease.

Suggested Citation

  • Shabbir, Safia & Rana, Faisal & Iqbal, Javed, 2016. "Monetary Policy and Risk Taking Behavior of Banks in Pakistan," MPRA Paper 122931, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:122931
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    File URL: https://mpra.ub.uni-muenchen.de/122960/1/MPRA_paper_122960.pdf
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    References listed on IDEAS

    as
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    5. Buch, Claudia M. & Eickmeier, Sandra & Prieto, Esteban, 2014. "In search for yield? Survey-based evidence on bank risk taking," Journal of Economic Dynamics and Control, Elsevier, vol. 43(C), pages 12-30.
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    7. Borio, Claudio & Zhu, Haibin, 2012. "Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism?," Journal of Financial Stability, Elsevier, vol. 8(4), pages 236-251.
    8. Acharya, Viral & Naqvi, Hassan, 2012. "The seeds of a crisis: A theory of bank liquidity and risk taking over the business cycle," Journal of Financial Economics, Elsevier, vol. 106(2), pages 349-366.
    9. Shabbir, Safia & Iqbal, Javed & Hameed, Saima, 2013. "Risk Premium, Interest Rate Differential, and Subsidized Lending in Pakistan," MPRA Paper 48250, University Library of Munich, Germany.
    10. Agur, Itai & Demertzis, Maria, 2012. "Excessive bank risk taking and monetary policy," Working Paper Series 1457, European Central Bank.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Monetary policy; Transmission mechanisms; Risk-taking channel; Panel data;
    All these keywords.

    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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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