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

By Giovanni Dell'Ariccia, Luc Laeven, Gustavo A. Suarez. Social Science Research Network, 2016

176 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/41e1bd8ff3d711b625d63f2034fbc54554f74b6e

Citations in the corpus

• Real interest rates, leverage, and bank risk-taking (2014, unknown): “[23] use confidential data from the Federal Reserve’s Survey of Terms of Business Lending with information on individual bank responses to directly test the predictions from our model.”
• Monetary Policy, Financial Conditions, and Financial Stability (2014, unknown): “Dell’Ariccia, Laeven, and Suarez (2013) look at this channel in the United States and find a relationship between ex ante riskiness of loans and bank capital.”
• Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe (2017, unknown): “At the same time, forbearing on a bad loan implies an increase in the expected riskiness of the bank’s balance sheet; Dell’Ariccia et al. (2017) show that, in line with theoretical predictions by Dell’Ariccia et al. (2014), while indeed risktaking in new loans is higher when real policy interest…”