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Bank risk-taking and impaired monetary policy transmission
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How does risk-taking affect the transmission of interest rate changes into loan issuance? We study this question in a banking model with agency frictions. The risk-free rate affects bank lending via a portfolio adjustment and a loan risk channel. The former implies that the bank issues more loans when the risk-free rate falls. The latter implies that the bank may issue fewer loans because lower risk-free rates lead to higher risk-taking. Thus, the loan risk channel can counteract the portfolio adjustment channel. There exists a reversal rate, so that loan supply even contracts due to higher risk-taking. The model’s implications square with recent evidence on monetary transmission.
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Koenig, P. J., & Schliephake, E. (2024). Bank risk-taking and impaired monetary policy transmission. International Journal of Central Banking, 20(3), 257-302.
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Licença CC
Sem licença CC