Bank Leverage and Monetary Policy's Risk-Taking Channel
Title | Bank Leverage and Monetary Policy's Risk-Taking Channel PDF eBook |
Author | Mr.Giovanni Dell'Ariccia |
Publisher | International Monetary Fund |
Pages | 41 |
Release | 2013-06-06 |
Genre | Business & Economics |
ISBN | 1484381130 |
We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks 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 (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.
Bank Capital and Risk-Taking
Title | Bank Capital and Risk-Taking PDF eBook |
Author | Stéphanie M. Stolz |
Publisher | Springer Science & Business Media |
Pages | 163 |
Release | 2007-10-24 |
Genre | Business & Economics |
ISBN | 3540485457 |
The year-long consultations on Basel II mirror the international popularity of capital requirements as a regulatory instrument. Yet, the impact of capital requirements on banks' behavior is not fully understood. The aim of this study is to contribute to this understanding.
Monetary Policy, Leverage, and Bank Risk Taking
Title | Monetary Policy, Leverage, and Bank Risk Taking PDF eBook |
Author | Mr.Luc Laeven |
Publisher | International Monetary Fund |
Pages | 38 |
Release | 2010-12-01 |
Genre | Business & Economics |
ISBN | 1455210838 |
We provide a theoretical foundation for the claim that prolonged periods of easy monetary conditions increase bank risk taking. The net effect of a monetary policy change on bank monitoring (an inverse measure of risk taking) depends on the balance of three forces: interest rate pass-through, risk shifting, and leverage. When banks can adjust their capital structures, a monetary easing leads to greater leverage and lower monitoring. However, if a bank's capital structure is fixed, the balance depends on the degree of bank capitalization: when facing a policy rate cut, well capitalized banks decrease monitoring, while highly levered banks increase it. Further, the balance of these effects depends on the structure and contestability of the banking industry, and is therefore likely to vary across countries and over time.
Bank Profitability and Risk-Taking
Title | Bank Profitability and Risk-Taking PDF eBook |
Author | Natalya Martynova |
Publisher | International Monetary Fund |
Pages | 44 |
Release | 2015-11-25 |
Genre | Business & Economics |
ISBN | 1513565818 |
Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
Bank Capital
Title | Bank Capital PDF eBook |
Author | Ouarda Merrouche |
Publisher | International Monetary Fund |
Pages | 38 |
Release | 2010-12-01 |
Genre | Business & Economics |
ISBN | 1455254878 |
Using a multi-country panel of banks, we study whether better capitalized banks experienced higher stock returns during the financial crisis. We differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the tangible equity ratio. We find several results: (i) before the crisis, differences in capital did not have much impact on stock returns; (ii) during the crisis, a stronger capital position was associated with better stock market performance, most markedly for larger banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) higher quality forms of capital, such as Tier 1 capital and tangible common equity, were more relevant.
International Convergence of Capital Measurement and Capital Standards
Title | International Convergence of Capital Measurement and Capital Standards PDF eBook |
Author | |
Publisher | Lulu.com |
Pages | 294 |
Release | 2004 |
Genre | Bank capital |
ISBN | 9291316695 |
Bank Capital and Risk-taking
Title | Bank Capital and Risk-taking PDF eBook |
Author | Alistair Milne |
Publisher | |
Pages | 47 |
Release | 1998 |
Genre | Bank capital |
ISBN |