Bank Risk-Taking, Securitization, Supervision and Low Interest Rates: Evidence from the Euro Area and the U.S. Lending Standards

By Angela Maddaloni, José-Luis Peydró. Social Science Research Network, 2011

371 citations recorded by the source corpus.

Using a unique dataset of the Euro-area and the U.S. bank lending standards, we find that low (monetary policy) short-term interest rates soften standards for household and corporate loans. This softening--especially for mortgages--is amplified by securitization activity, weak supervision for bank capital, and low monetary policy rates for an extended period. Conversely, low long-term interest rates do not soften lending standards. Finally, countries with softer lending standards before the crisis related to negative Taylor rule residuals experienced a worse economic performance afterward. These results help shed light on the origins of the crisis and have important policy implications. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c341077e3b2368e411fd818f343eb039b6f73b58

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Financial Regulation, Financial Globalization and the Synchronization of Economic Activity (2009, neutral): “In a global financial crisis, such as the 2007 − 2009 recession, even developed country firms may suffer from credit supply shocks (see, for example, Ivashina and Scharfstein (2010) and Cornett, McNutt, and Tehranian (2011) for U.S. and Maddaloni and Peydro (2011) for the euro area and U.”
Financial Stability and Monetary Policy: How Closely Interlinked? (2014, neutral): “8For example, as discussed in section 4.1, Maddaloni and Peydró (2011) show that the effects of monetary policy on bank lending standards depend on the tightness of the prudential regime. which monetary policy may want to offset.9 It is therefore important that both policies are coordinated and…”
Policies for Macrofinancial Stability: How to Deal with Credit Booms (2012, neutral): “…not seem to slow the boom enough to contain the associated risks.19 Partly in contrast, a growing literature suggests that easy monetary policy conditions are conducive to lower lending standards, which in turn could lead to credit booms (see Maddaloni and Peydró, 2011, and references therein).”
Bank Leverage and Monetary Policy's Risk-Taking Channel (2013, neutral): “Bank risk is mostly measured using information on changes in lending standards observed in lending surveys (e.g., Maddaloni and Peydro, 2011) or using ex-post measures of bank risk based on loan default rates, which are derived from either credit registers (Jimenez et al., 20084) or rating agency…”
Monetary Policy Pass-Through: Household Consumption and Voluntary Deleveraging (2014, neutral): “Unlike Mian and Sufi (2012a), which examines a one-time subsidy to purchase prices, we consider a shock that is much larger and that persists over a number of quarters.”
Monetary policy and risk taking (2015, neutral): “Maddaloni and Peydró Alcalde [36] use evidence from a euro area lending survey to see whether monetary policy influences the lending practices of banks.”