Monetary Policy, Risk-Taking and Pricing: Evidence from a Quasi-Natural Experiment

Vasso Ioannidou, Steven Ongena and Jose-Luis Peydro

EconStor Open Access Articles and Book Chapters, 2015, vol. 19, issue 1, 95-144

Abstract: We study the risk-taking channel of monetary policy in Bolivia, a dollarized country where monetary changes are transmitted exogenously from the US. We find that a lower policy rate spurs the granting of riskier loans, to borrowers with worse credit histories, lower ex-ante internal ratings, and weaker ex-post performance (acutely so when the rate subsequently increases). Effects are stronger for small firms borrowing from multiple banks. To uniquely identify risk-taking we assess collateral coverage, expected returns and risk premia of the newly-granted riskier loans, finding that their returns and premia are actually lower, especially at banks suffering from agency problems.

Keywords: monetary policy; low short-term interest rates; softening lending standards; credit risk; liquidity risk; subprime borrowers; bank agency problems; duration analysis (search for similar items in EconPapers)
JEL-codes: E44 G01 G21 G28 L14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (177)

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Related works:
Journal Article: Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment (2015)
Working Paper: Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment (2009)
Working Paper: Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment (2009)
Working Paper: Monetary policy, risk-taking and pricing: Evidence from a quasi-natural experiment (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:216809

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