Monetary Policy and Risk Taking Behavior of Banks in Pakistan

Shabbir, Safia and Rana, Faisal and Iqbal, Javed (2016): Monetary Policy and Risk Taking Behavior of Banks in Pakistan.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary policy; Transmission mechanisms; Risk-taking channel; Panel data
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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