TY - JOUR
T1 - From theory to practice: Monetary policy transmission and bank risk dynamics
AU - Zhang, Zheng
AU - Clovis, Joel
AU - Moffatt, Peter
AU - Wang, Wenxue
N1 - Data Availability: All relevant data are publicly available from the Harvard Dataverse repository (https://doi.org/10.7910/DVN/ELDTQ3).
Funding: Initials of the authors who received each award:ZZ (Zheng Zhang), WW (Wenxue Wang); This study was supported by Shandong Technology and Business University research funds (Grant numbers. BS202121 and BS202122); The sponsors or funders did not play any role in the study design, data collection and analysis, decision to publish, or preparation of the manuscript; The National Social Science Fund of China (23BJY113)
PY - 2024/4/18
Y1 - 2024/4/18
N2 - This paper investigates the relationship between monetary policy and bank risk-taking by introducing a model wherein banks expend a level of costly monitoring effort to select low-risk projects, thereby reducing the risk associated with the loans they grant. The impact of monetary policy on bank risk-taking is examined through both theoretical models and empirical analysis. The paper compares theoretical models with different assumptions, revealing an unambiguous negative effect without the assumption of limited liability for banks, and an ambiguous effect with the assumption of limited liability for banks, influenced by the equity ratio. The empirical model employs unique quarterly data comprising balance sheet information for top-listed banks in the U.S. banking system from 2000 to 2017. The findings indicate that low-interest rates contribute to an increase in bank risk-taking. Moreover, this effect is more pronounced after the financial crisis and weaker before the crisis. Additionally, the impact is evident for undercapitalized banks and more substantial for those financed with a higher proportion of equity.
AB - This paper investigates the relationship between monetary policy and bank risk-taking by introducing a model wherein banks expend a level of costly monitoring effort to select low-risk projects, thereby reducing the risk associated with the loans they grant. The impact of monetary policy on bank risk-taking is examined through both theoretical models and empirical analysis. The paper compares theoretical models with different assumptions, revealing an unambiguous negative effect without the assumption of limited liability for banks, and an ambiguous effect with the assumption of limited liability for banks, influenced by the equity ratio. The empirical model employs unique quarterly data comprising balance sheet information for top-listed banks in the U.S. banking system from 2000 to 2017. The findings indicate that low-interest rates contribute to an increase in bank risk-taking. Moreover, this effect is more pronounced after the financial crisis and weaker before the crisis. Additionally, the impact is evident for undercapitalized banks and more substantial for those financed with a higher proportion of equity.
UR - http://www.scopus.com/inward/record.url?scp=85190962608&partnerID=8YFLogxK
U2 - 10.1371/journal.pone.0299209
DO - 10.1371/journal.pone.0299209
M3 - Article
SN - 1932-6203
VL - 19
JO - PLoS One
JF - PLoS One
IS - 4
M1 - e0299209
ER -