Does Monetary Policy Influence Banks' Perception of Risks?

Simona Malovana, Dominika Kolcunová and Václav Brož

No 2018/03, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper studies the extent to which monetary policy may affect banks' perception of credit risk and the way banks measure risk under the internal ratings-based approach. Specifically, we analyze the effect of different monetary policy indicators on banks' risk weights for credit risk. We present robust evidence of the existence of the risk-taking channel in the Czech Republic. Further, we show that the recent prolonged period of accommodative monetary policy has been instrumental in establishing this relationship. Finally, we obtain comparable results by extending the analysis to cover all the Visegrad Four countries. The presented findings have important implications for the prudential authority, which should be aware of the possible side-effects of monetary policy on how banks measure risk.

Keywords: Banks; financial stability; internal ratings-based approach; risk-taking channel (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 G28 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2018-01, Revised 2018-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac, nep-mon and nep-tra
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Related works:
Working Paper: Does Monetary Policy Influence Banks' Perception of Risks? (2017)
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