Bank Risk-Taking and Impaired Monetary Policy Transmission

Philipp J. Koenig and Eva Schliephake
Additional contact information
Philipp J. Koenig: Deutsche Bundesbank
Eva Schliephake: Lisbon School of Business and Economics

International Journal of Central Banking, 2024, vol. 20, issue 3, 257-371

Abstract: How does risk-taking affect the transmission of interest rate changes into loan issuance? We study this question in a banking model with agency frictions. The risk-free rate affects bank lending via a portfolio adjustment and a loan risk channel. The former implies that the bank issues more loans when the risk-free rate falls. The latter implies that the bank may issue fewer loans because lower risk-free rates lead to higher risk-taking. Thus, the loan risk channel can counteract the portfolio adjustment channel. There exists a reversal rate, so that loan supply even contracts due to higher risk-taking. The model’s implications square with recent evidence on monetary transmission.

Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.ijcb.org/journal/ijcb24q3a6.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2024:q:3:a:6

Access Statistics for this article

International Journal of Central Banking is currently edited by Loretta J. Mester

More articles in International Journal of Central Banking from International Journal of Central Banking
Bibliographic data for series maintained by Bank for International Settlements ().