The Most Expected Things Often Come as a Surprise: Analysis of the Impact of Monetary Surprises on the Bank's Risk and Activity

Melchisedek Joslem Ngambou Djatche

No 2021-45, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: In this paper, we analyse the link between monetary surprises and banks' activity and risk-taking. Some theoretical and empirical studies show that monetary easing increases banks' appetite for risk, affect credit allocation and bank's profitability. Our study adds to analyses of the monetary risk-taking channel considering monetary surprise, i.e. the impact of unexpected changes in monetary policy on bank's risk and activity. Using a dataset of US banks, we find that negative monetary surprises (higher increase or lower decrease of interest rates than expected) lead banks to take more risk, to grant more corporate loans than consumption loans, and to be more profitable. We complement the literature on the risk-taking channel and provide arguments that Central Banks can manage financial stability.

Keywords: monetary surprise; financial stability; bank risk-taking; VAR model; dynamic panel regression (search for similar items in EconPapers)
JEL-codes: E44 E58 G21 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2021-12
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-rmg
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Working Paper: The Most Expected Things Often Come as a Surprise: Analysis of the Impact of Monetary Surprises on the Bank's Risk and Activity (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:gre:wpaper:2021-45

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