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The risk‐taking channel in the United States: A GVAR approach

Raslan Alzuabi, Mustafa Caglayan and Kostas Mouratidis

International Journal of Finance & Economics, 2021, vol. 26, issue 4, 5826-5849

Abstract: Using a panel of large U.S. banks, we examine banks' risk‐taking behaviour in response to monetary policy shocks. Our investigation provides support for the presence of a risk‐taking channel: banks' non‐performing loans increase in the medium to long‐run following an expansionary monetary policy shock. We also find that banks' capital structure plays an important role in explaining bank's risk‐taking appetite. Impulse response analysis shows that shocks emanating from larger banks spill over to the rest of the sector but no such effect is observed for smaller banks. These findings are confirmed for banks' Z‐score.

Date: 2021
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