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Industry heterogeneity in the risk-taking channel

Manthos Delis (), Maria Iosifidi and Nikolaos Mylonidis

Economic Modelling, 2021, vol. 104, issue C

Abstract: We contend that industry heterogeneity in risk and financing has important implications for the passthrough of monetary policy to corporate loan spreads. Existing literature on the risk-taking channel shows that lax monetary policy induces bank risk-taking, and this implies that industries’ risk profiles might induce asymmetries in monetary policy passthrough. Using U.S. syndicated loans over 1984-2018, we examine industry heterogeneity in the potency of the risk-taking channel and assess how this heterogeneity affects firms’ performance. We find that a one percentage point decrease in the shadow rate increases loan cost by approximately 30 basis points in the mining-construction and manufacturing sectors. The effect is lower in the services and transportation-utilities industries, while it is insignificant in the trade and finance sectors. The identified differences in the potency of the risk-taking channel explain a significant part of the inferior firm performance of highly affected sectors in the year after loan origination.

Keywords: Bank risk-taking; Monetary policy; United States; Syndicated loans; Industry heterogeneity; Firm performance (search for similar items in EconPapers)
JEL-codes: E43 E52 G01 G21 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Industry Heterogeneity in the Risk-Taking Channel (2020) Downloads
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DOI: 10.1016/j.econmod.2021.105621

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