Monetary Policy and Bank Risk-Taking

By Giovanni Dell'Ariccia, Gianni De Nicolo, Luc Laeven, Fabian Valencia

July 27, 2010

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Giovanni Dell'Ariccia, Gianni De Nicolo, Luc Laeven, and Fabian Valencia. Monetary Policy and Bank Risk-Taking, (USA: International Monetary Fund, 2010) accessed November 21, 2024

Summary

This paper contributes to the current debate on what role financial stability considerations should play in monetary policy decision and how best to integrate macro-prudential and monetary policy frameworks. The paper broadly supports the view that monetary policy easing induces greater risk-taking by banks but also shows that the relationship between real interest rates and banking risk is more complex. Ultimately, it depends on how much skin in the game banks have. The central message of the paper is broadly complementary to those in the recent MCM board paper “Central Banking Lessons from the Crisis.”

Subject: Banking, Central bank policy rate, Commercial banks, Loans, Real interest rates

Keywords: Bank equity, Bank risk, Bank Risk Taking, Franchise value, Leverage ratio, Leveraged bank, SPN

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Staff Position Note No. 2010/009
Stock No:

SPNEA2010009
ISBN:

9781455253234
ISSN:

2617-6742

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