Monetary policy and the risk-taking channel

Leonardo Gambacorta

BIS Quarterly Review, 2009

Abstract: This paper investigates the link between low interest rates and bank risk-taking. Monetary policy may influence banks’ perceptions of, and attitude towards, risk in at least two ways: (i) through a search for yield process, especially in the case of nominal return targets; and (ii) by means of the impact of interest rates on valuations, incomes and cash flows, which in turn can modify how banks measure risk. Using a comprehensive dataset of listed banks, this paper finds that low interest rates over an extended period cause an increase in banks’ risk-taking.

JEL-codes: E44 G21 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (165)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:bisqtr:0912f

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