Bank Leverage And Monetary Policy S Risk Taking Channel
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Bank Leverage and Monetary Policy s Risk Taking Channel
Author | : Mr.Giovanni Dell'Ariccia,Mr.Luc Laeven,Mr.Gustavo Suarez |
Publsiher | : International Monetary Fund |
Total Pages | : 41 |
Release | : 2013-06-06 |
Genre | : Business & Economics |
ISBN | : 9781484333730 |
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We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.
Bank Leverage and Monetary Policy s Risk taking Channel
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Author | : Giovanni Dell'Ariccia,Luc Laeven,Gustavo A. Suarez |
Publsiher | : Unknown |
Total Pages | : 67 |
Release | : 2016 |
Genre | : Bank loans |
ISBN | : OCLC:946890600 |
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We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on banks' internal ratings on loans to businesses over the period 1997 to 2011 from the Federal Reserve's survey of terms of business lending. We find that ex-ante risk taking by banks (measured by the risk rating of new loans) is negatively associated with increases in short-term interest rates. This relationship is more pronounced in regions that are less in sync with the nationwide business cycle, and less pronounced for banks with relatively low capital or during periods of financial distress.
Monetary Policy Leverage and Bank Risk Taking
Author | : Mr.Luc Laeven,Mr.Giovanni Dell'Ariccia,Mr.Robert Marquez |
Publsiher | : International Monetary Fund |
Total Pages | : 38 |
Release | : 2010-12-01 |
Genre | : Business & Economics |
ISBN | : 9781455210831 |
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We provide a theoretical foundation for the claim that prolonged periods of easy monetary conditions increase bank risk taking. The net effect of a monetary policy change on bank monitoring (an inverse measure of risk taking) depends on the balance of three forces: interest rate pass-through, risk shifting, and leverage. When banks can adjust their capital structures, a monetary easing leads to greater leverage and lower monitoring. However, if a bank's capital structure is fixed, the balance depends on the degree of bank capitalization: when facing a policy rate cut, well capitalized banks decrease monitoring, while highly levered banks increase it. Further, the balance of these effects depends on the structure and contestability of the banking industry, and is therefore likely to vary across countries and over time.
Monetary Policy and Bank Risk Taking
Author | : Mr.Giovanni Dell'Ariccia |
Publsiher | : International Monetary Fund |
Total Pages | : 23 |
Release | : 2010-07-27 |
Genre | : Business & Economics |
ISBN | : 9781455253234 |
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This paper contributes to the current debate on what role financial stability considerations should play in monetary policy decision and how best to integrate macro-prudential and monetary policy frameworks. The paper broadly supports the view that monetary policy easing induces greater risk-taking by banks but also shows that the relationship between real interest rates and banking risk is more complex. Ultimately, it depends on how much skin in the game banks have. The central message of the paper is broadly complementary to those in the recent MCM board paper “Central Banking Lessons from the Crisis.”
Monetary Policy Bank Leverage and Financial Stability
Author | : Mr.Fabian Valencia |
Publsiher | : International Monetary Fund |
Total Pages | : 39 |
Release | : 2011-10-01 |
Genre | : Business & Economics |
ISBN | : 9781463923235 |
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This paper develops a model to assess how monetary policy rates affect bank risk-taking. In the model, a reduction in the risk-free rate increases lending profitability by reducing funding costs and increasing the surplus the monopolistic bank extracts from borrowers. Under limited liability, this increased profitability affects only upside returns, inducing the bank to take excessive leverage and hence risk. Excessive risk-taking increases as the interest rate decreases. At a broader level, the model illustrates how a benign macroeconomic environment can lead to excessive risk-taking, and thus it highlights a role for macroprudential regulation.
Managing the Sovereign Bank Nexus
Author | : Mr.Giovanni Dell'Ariccia,Caio Ferreira,Nigel Jenkinson,Mr.Luc Laeven,Alberto Martin,Ms.Camelia Minoiu,Alex Popov |
Publsiher | : International Monetary Fund |
Total Pages | : 54 |
Release | : 2018-09-07 |
Genre | : Business & Economics |
ISBN | : 9781484359624 |
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This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.
The Economics of Exchange Rates
Author | : Lucio Sarno,Mark P. Taylor |
Publsiher | : Unknown |
Total Pages | : 344 |
Release | : 2002 |
Genre | : Business & Economics |
ISBN | : STANFORD:36105025930772 |
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Table of contents
Risk Taking and Interest Rates
Author | : Seung Jung Lee,Lucy Qian Liu,Viktors Stebunovs |
Publsiher | : International Monetary Fund |
Total Pages | : 47 |
Release | : 2017-01-27 |
Genre | : Business & Economics |
ISBN | : 9781475572377 |
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We study how low interest rates in the United States affect risk taking in the market of crossborder leveraged corporate loans. To the extent that actions of the Federal Reserve affect U.S. interest rates, our analysis provides evidence of a cross-border spillover effect of monetary policy. We find that before the crisis, lenders made ex-ante riskier loans to non- U.S. borrowers in response to a decline in short-term U.S. interest rates, and, after it, in response to a decline in longer-term U.S. interest rates. Economic uncertainty and risk appetite appear to play a limited role in explaining ex-ante credit risk. Our results highlight the potential policy challenges faced by central banks in affecting credit risk cycles in their own jurisdictions.