Monetary and prudential policy coordination: impact on bank’s risk-taking

Melchisedek Joslem Ngambou Djatche () and Olivier Bruno ()
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Melchisedek Joslem Ngambou Djatche: Faculté de Droit, Economie et Gestion de l’université d’Angers.
Olivier Bruno: GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur

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Abstract: This paper models monetary policy's transmission to bank risk in presence of a capital requirement ratio. We show that the impact of a change in monetary policy rate on bank's risk level is not independent from the strength of the capital requirement ratio. A monetary easing, as well as a monetary contraction, may lead bank to take more risk according to some effects related to the risk sensitivity of its intermediation margin and risk sensitivity of the prudential tool. We show that the combination of monetary policy with prudential policy has different outcomes in terms of financial stability and expected cost of bank failure.

Date: 2024-10-24
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Published in Vietnam Symposium in Banking and Finance 2024, Oct 2024, Hanoi (Vietnam), Vietnam

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05095388

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