Monetary Policy and Bank Risk-Taking

Giovanni Dell'ariccia, Gianni De Nicolo, Luc Laeven and Fabian Valencia

No 2010/009, IMF Staff Position Notes from International Monetary Fund

Abstract: This paper contributes to the current debate on what role financial stability considerations should play in monetary policy decision and how best to integrate macro-prudential and monetary policy frameworks. The paper broadly supports the view that monetary policy easing induces greater risk-taking by banks but also shows that the relationship between real interest rates and banking risk is more complex. Ultimately, it depends on how much skin in the game banks have. The central message of the paper is broadly complementary to those in the recent MCM board paper “Central Banking Lessons from the Crisis.”

Keywords: SPN; bank risk; bank equity; franchise value; leverage ratio; bank Risk Taking; leveraged bank (search for similar items in EconPapers)
Pages: 22
Date: 2010-07-27
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Citations: View citations in EconPapers (47)

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