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In search for yield? Survey-based evidence on bank risk taking

Claudia Buch, Sandra Eickmeier () and Esteban Prieto ()

No 2011,10, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: There is growing consensus that the conduct of monetary policy can have an impact on stability through the risk-taking incentives of banks. Falling interest rates might induce a 'search for yield' and generate incentives to invest into risky activities. This paper provides evidence on the link between monetary policy, commercial property prices, and bank risk taking. We use a factor-augmented vector autoregressive model (FAVAR) for the U.S. for the period 1997-2008. We include standard macroeconomic indicators and factors summarizing information provided in the Federal Reserve's Survey of Terms of Business Lending. These data allow modeling the reactions of banks' new lending volumes and prices as well as the riskiness of new loans. We do not find evidence for increased risk taking for the entire banking system after a monetary policy loosening or an unexpected increase in property prices. This masks, however, important differences across banking groups. Small domestic banks increase their exposure to risk, foreign banks lower risk, and large domestic banks do not change their risk exposure.

Keywords: FAVAR; bank risk taking; macro-finance linkages; monetary policy; commercial property prices (search for similar items in EconPapers)
JEL-codes: E44 G21 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Journal Article: In search for yield? Survey-based evidence on bank risk taking (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:201110

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