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The Risk‐Taking Channel of Monetary Policy: Exploring All Avenues
Author(s) -
BONFIM DIANA,
SOARES CARLA
Publication year - 2018
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12500
Subject(s) - interest rate , ex ante , loan , channel (broadcasting) , monetary policy , margin (machine learning) , economics , monetary economics , incentive , default risk , origination , business , actuarial science , credit risk , finance , macroeconomics , microeconomics , computer network , electrical engineering , machine learning , computer science , engineering
The literature on the risk‐taking channel of monetary policy grew quickly, leading to scattered evidence. We examine this channel through different angles, exploring detailed information on loan origination and performance. Ex ante riskier borrowers receive more funding at the extensive margin when interest rates are lower. Ex post performance is independent of the level of interest rates at origination. Still, loans granted in periods of very low and stable interest rates show higher default rates once interest rates start to increase. Risk‐taking is stronger among banks with lower capital ratios, suggesting that this channel may be linked to managerial incentives for risk‐shifting.