In Search for Yield? Survey-Based Evidence on Bank Risk Taking

By Claudia M. Buch, Sandra Eickmeier, Esteban Prieto. Social Science Research Network, 2014

176 citations recorded by the source corpus.

There is growing consensus that the conduct of monetary policy can have an impact on financial and economic stability through the risk-taking incentives of banks. Falling interest rates might induce a “search for yield” and generate incentives to invest into risky activities. This paper provides evidence on the link between monetary policy and commercial property prices and the risk-taking incentives of banks. We use a factor-augmented vector autoregressive model (FAVAR) for the U.S. for the years 1997-2008. We include standard macroeconomic indicators and factors summarizing information provided in the Federal Reserve’s Survey of Terms of Business Lending. These data allow modeling the reactions of banks’ new lending volumes and the riskiness of new loans. We do not find evidence for a risk-taking channel for the entire banking system after a monetary policy loosening or an unexpected increase in property prices. This masks, however, important differences across banking groups. Small domestic banks increase their exposure to risk, foreign banks lower risk, and large domestic banks do not change their risk exposure.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/b1114e6168239941687b114692525624bf5b8f10

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Citations in the corpus

Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States (2016, unknown): “An exception is Buch et al. (2012) but unlike us they use aggregate responses to the STBL rather than individual bank responses, which are not publicly available.”
Does monetary policy affect bank risk (2014, methodology): “Buch, Eickmeier, and Prieto (2011) resort to information provided in the Federal Reserve’s Survey of Terms of Business Lending and found evidence for a risk-taking channel after a monetary policy loosening for small domestic banks.”
Real interest rates, leverage, and bank risk-taking (2014, methodology): “[20], also using data from the Federal Reserve’s Survey of Terms of Business Lending, find that bank risk-taking increases following periods of monetary loosening for small domestic banks.”