Bank risk-taking and impaired monetary policy transmission

Arbeitspapier

We consider a standard banking model with agency frictions to simultaneously study the weakening and reversal of monetary transmission and banks' risk-taking in a low-interest environment. Both, weaker monetary transmission and higher risk-taking arise because lower policy rates impair banks' net worth. The pass-through to deposit rates, the level of excess reserves and the extent of the agency problem between banks and depositors are crucial determinants of monetary transmission. If the deposit pass-through is sufficiently impaired, a reversal rate exists. For policy rates below the reversal rate further interest rate reductions lead to a disproportionate increase in risk-taking and a contraction in loan supply.

Object Details

• ISBN: 978-92-899-4971-2
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2638

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Markets and the Macroeconomy ; Monetary Policy
• Subject: Monetary policy ; Bank lending ; Risk-taking channel ; Reversal rate

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Koenig, Philipp J. ; Schliephake, Eva
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2022

Further information

• DOI: doi:10.2866/23769
• Handle: http://hdl.handle.net/10419/261172
• Last update: 10.03.2025, 11:42 AM CET