The risk-taking channel of monetary policy in the USA: Evidence from micro-level data

Delis, Manthos D and Hasan, Iftekhar and Mylonidis, Nikolaos (2011): The risk-taking channel of monetary policy in the USA: Evidence from micro-level data.

Abstract

There is a growing consensus that a prolonged period of low interest rates can exert a negative impact on financial stability through the risk-taking incentives of banks. Using micro-level datasets from the US banking sector, this paper finds evidence of a highly significant negative relationship between monetary policy rates and bank-risk taking. This finding remains robust across various specifications, sub-periods and subsamples, thereby confirming the presence of an active risk-taking channel of monetary policy since the 1990s. The results, therefore, support the new responsibilities of the Fed on macro-prudential supervision to monitor systemic risks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bank risk; monetary policy; US commercial banks; Total loans; New loans
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G0 - General > G01 - Financial Crises

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