Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States

Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States

0.00 Avg rating0 Votes
Article ID: iaor2017947
Volume: 72
Issue: 2
Start Page Number: 613
End Page Number: 654
Publication Date: Apr 2017
Journal: The Journal of Finance
Authors: , ,
Keywords: finance & banking, risk, government, statistics: empirical, management, decision
Abstract:

We present evidence of a risk‐taking channel of monetary policy for the U.S. banking system. We use confidential data on banks’ internal ratings on loans to businesses over the period 1997 to 2011 from the Federal Reserve's Survey of Terms of Business Lending. We find that ex ante risk‐taking by banks (measured by the risk rating of new loans) is negatively associated with increases in short‐term interest rates. This relationship is more pronounced in regions that are less in sync with the nationwide business cycle, and less pronounced for banks with relatively low capital or during periods of financial distress.

Reviews

Required fields are marked *. Your email address will not be published.