LOW INTEREST RATES AND BANK RISK-TAKING: HAS THE CRISIS CHANGED ANYTHING? EVIDENCE FROM THE EUROZONE

Alin Marius Andries (), Vasile Cocris () and Ioana Plescau ()
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Alin Marius Andries: Alexandru Ioan Cuza University of Iasi, B-dul Carol 1 nr.22, Iasi, 70050, Romania
Vasile Cocris: Alexandru Ioan Cuza University of Iasi, B-dul Carol 1 nr.22, Iasi, 70050, Romania
Ioana Plescau: Alexandru Ioan Cuza University of Iasi, B-dul Carol 1 nr.22, Iasi, 70050, Romania
Authors registered in the RePEc Author Service: Alin Marius Andrieș

Review of Economic and Business Studies, 2015, issue 15, 125-148

Abstract: This paper examines the impact of monetary policy on bank risk-taking and the influence of the recent financial crisis on this relation. We use a dataset of 571 commercial banks from Eurozone and analyze the relation on the period from 1999 to 2011, with emphasize on the period 2008 to 2011. We use non-performing loans, loan loss provisions and Z-score as measures for bank risk-taking, while for monetary policy the proxies are short-term interest rates (computed using a Taylor rule) and long-term interest rates. We determine the relation between the two by taking into account some specific control variables and analyze it using an entity fixed-effects model and Generalized Method of Moments, alternatively. Empirical results point to a negative relation between interest rates and bank risk-taking. In addition to this, results show that the crisis has led to an additional negative impact on the relation between interest rates and bank risk-taking for the turmoil period 2008-2011.

Keywords: monetary policy; bank risk-taking; financial crisis; monetary transmission mechanism (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:aic:revebs:y:2015:j:15:andriesa

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