Monetary Policy, Funding Cost and Banks’ Risk-Taking: Evidence from the United States

Constantin Bürgi and Bo Jiang

No 9995, CESifo Working Paper Series from CESifo

Abstract: How much deposits and equity a bank has influences how a banks’ lending responds to monetary policy. While the responsiveness for the bank lending channel has been well established, this is not the case for the risk-taking channel (RTC). We show in a value-at-risk RTC model that the lending for banks with relatively more equity and non-interest-bearing deposits should respond less to monetary policy tightening. This suggests that non-interest-bearing deposits act as “pseudo capital”. In a panel of US banks, we find strong evidence in support of our model for various risk measures.

Keywords: bank lending; deposits; value-at-risk; pseudo capital (search for similar items in EconPapers)
JEL-codes: E43 E52 G21 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9995

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