Identifying the risk-Taking channel of monetary transmission and the connection to economic activity

Nimrod Segev

Journal of Banking & Finance, 2020, vol. 116, issue C

Abstract: I use loan-level data from the syndicated loan market in the U.S. to investigate how monetary policy affects banks’ sensitivity to risk. Using loan-level data and banks’ sensitivity to risk enables me to identify the risk-taking channel and disentangle it from other monetary channels. I show that banks change their behavior toward risk following changes in monetary policy where loose monetary policy reduces banks’ sensitivity to risk. I then provide evidence for the significant contribution of risk-taking shocks and changes in banks’ risk-taking behavior to economic outcomes and business cycle fluctuations. The paper’s primary contribution is in providing new loan-level evidence for the existence of the risk-taking channel in the U.S., as well as a possible link between the risk-taking channel and business cycle fluctuations.

Keywords: Monetary transmission; Risk-taking channel; Loan-level data; Credit spreads (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 G21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:116:y:2020:i:c:s0378426620301163

DOI: 10.1016/j.jbankfin.2020.105850

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