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The Risk-Taking Channel in the US: A GVAR Approach

Alzuabi, Raslan and Caglayan, Mustafa and Mouratidis, Kostas (2020): The Risk-Taking Channel in the US: A GVAR Approach.

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Abstract

Using a panel of large US banks, we examine banks' risk-taking behaviour in response to monetary policy shocks. Our investigation provides support for the presence of a risk-taking channel: banks' nonperforming loans increase in the medium to long-run following an expansionary monetary policy shock. We also find that banks' capital structure plays an important role in explaining bank's risk-taking appetite. Impulse response analysis shows that shocks emanating from larger banks spillover to the rest of the sector but no such effect is observed for smaller banks. These findings are confirmed for banks' Z-score.

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