Download or read book Bank Leverage and Monetary Policy s Risk Taking Channel written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 2013-06-06 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.
Download or read book Bank Leverage and Monetary Policy s Risk Taking Channel written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 2013-06-06 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.
Download or read book Interest Rates and the Bank Risk Taking Channel written by Giovanni Dell'Ariccia and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent global financial crisis has brought the debate on how interest rates affect bank risk-taking to center stage. Proponents of this new risk-taking channel of monetary policy have argued that the low interest-rate environment in the run-up to the crisis may have created incentives for banks to take on excessive leverage and lower their lending standard, thus weakening bank portfolios. There is growing empirical evidence supporting this view. In contrast, this link has been little studied from a theoretical standpoint, leaving somewhat of a hole in our understanding of why (and how) banks' decisions concerning the overall risk of their portfolios, and their capital structures, may be influenced by changes in the interest rate environment and, by extension, policy choices (e.g., monetary policy) that affect it. We summarize some of the emerging literature on this topic (both empirical and theoretical), as well as some of the more classical work on related topics. We also present a simple model that illustrates various channels through which bank risk-taking is affected by the interest rate environment in which banks operate. We use that model to analyze the likely effect of various other forces. Given the wealth of evidence that interest rates may have a real effect through banks' portfolio decisions, it is important for policymakers to better understand the channel through which real interest rates operate on banks' decision-making.
Download or read book Bank Profitability and Risk Taking written by Natalya Martynova and published by International Monetary Fund. This book was released on 2015-11-25 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
Download or read book Risk Taking and Interest Rates written by Seung Jung Lee and published by International Monetary Fund. This book was released on 2017-02-10 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study how low interest rates in the United States affect risk taking in the market of crossborder leveraged corporate loans. To the extent that actions of the Federal Reserve affect U.S. interest rates, our analysis provides evidence of a cross-border spillover effect of monetary policy. We find that before the crisis, lenders made ex-ante riskier loans to non- U.S. borrowers in response to a decline in short-term U.S. interest rates, and, after it, in response to a decline in longer-term U.S. interest rates. Economic uncertainty and risk appetite appear to play a limited role in explaining ex-ante credit risk. Our results highlight the potential policy challenges faced by central banks in affecting credit risk cycles in their own jurisdictions.
Download or read book Monetary Policy and Bank Risk Taking written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 2010-07-27 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.”
Download or read book The interest rate risk of banks written by Max Teichert and published by BoD – Books on Demand. This book was released on 2018-02-28 with total page 274 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book produces three main results. First, the interest rate risk from on-balance sheet term transformation of banks in Germany exceeds the euro area average and is bound to increase even further. Within Germany, savings banks and cooperative banks are particularly engaged. Second, supervisory interest rate shock scenarios are found to be increasingly detached both from the historic and the forecasted development of interest rates in Germany. This increasingly limits the informative content of mere exposure measures such as the Basel interest rate coefficient when used as risk measures. Third, there is a reasonable theoretical rationale and there is strong empirical evidence for banks' search for yield in interest rate risk, i.e. a negative link between the term spread and the taking of interest rate risk by banks. There is even a threshold of income below which banks' search for yield in interest rate risk surfaces openly.
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Negative Interest Rate Policy NIRP written by Andreas Jobst and published by International Monetary Fund. This book was released on 2016-08-10 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.
Download or read book Low Interest Rates Off Balance Sheet Activities and Bank Risk taking written by Noma Ziadeh Mikati and published by . This book was released on 2013 with total page 386 pages. Available in PDF, EPUB and Kindle. Book excerpt: This research study focus on two of the widely discussed culprits of instability in the banking system: the first concern the possible relation between policy rates and bank risk-taking incentives, the second investigates off balance sheet activities (OBS) and their implication on bank soundness. The dissertation is divided in two parts: in part 1 I study the transmission channel of monetary policy through the risk-taking channel. Chapter 1 of this part is devoted to present a better understanding of the risk-taking channel, to present the different theoretical foundations that back up this channel and to discuss potential difficulties related to empirical evidence. Chapter 2 and 3 present empirical studies on the risk-taking channel using US loan surey and call report data. The key finding is that loan officers relax lending standards when interest rates are low also longer periods of negative real interest rates are characterised by asset expansion with a move to riskier assets. Part 2 studies banks' OBS activites and investigate their implication for the soundness of US commercial banks. Chapter 1 in Part 2 provides a detailed account of these activites showing the widespread use of credit substitutes and other derivative instruments. Chapter 2 investigates the implication of different types of OBS activites on bank risk exposure and bank failure during the 2001-2010 period. The main finding is that different types of off balance sheet activities impact differently bank risk exposure: Credit subsitutes enhance bank loans portfolio and bank performance but put more pressure on bank liquidity. Derivatives contracts implicate higher risk exposure for small banks.
Download or read book Interest Rate Risk in the Banking Book written by Beata Lubinska and published by John Wiley & Sons. This book was released on 2021-11-01 with total page 263 pages. Available in PDF, EPUB and Kindle. Book excerpt: Introduces practical approaches for optimizing management and hedging of Interest Rate Risk in the Banking Book (IRRBB) driven by fast evolving regulatory landscape and market expectations. Interest rate risk in the banking book (IRRBB) gained its importance through the regulatory requirements that have been growing and guiding the banking industry for the last couple of years. The importance of IRRBB is shifting for banks, away from ‘just’ a regulatory requirement to having an impact on the overall profitability of a financial institution. Interest Rate Risk in the Banking Book sheds light on the best practices for managing this importance risk category and provides detailed analysis of the hedging strategies, practical examples, and case studies based on the author’s experience. This handbook is rich in practical insights on methodological approach and contents of ALCO report, IRRBB policy, ICAAP, Risk Appetite Statement (RAS) and model documentation. It is intended for the Treasury, Risk and Finance department and is helpful in improving and optimizing their IRRBB framework and strategy. By the end of this IRRBB journey, the reader will be equipped with all the necessary tools to build a proactive and compliant framework within a financial institution. Gain an updated understanding of the evolving regulatory landscape for IRRBB Learn to apply maturity gap analysis, sensitivity analysis, and the hedging strategy in banking contexts • Understand how customer behavior impacts interest rate risk and how to manage the consequences Examine case studies illustrating key IRRBB exposures and their implications Written by London market risk expert Beata Lubinska, Interest Rate Risk in the Banking Book is the authoritative resource on this evolving topic.
Download or read book Bank Leverage and Monetary Policy s Risk taking Channel written by Giovanni Dell'Ariccia and published by . This book was released on 2016 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on banks' internal ratings on loans to businesses over the period 1997 to 2011 from the Federal Reserve's survey of terms of business lending. We find that ex-ante risk taking by banks (measured by the risk rating of new loans) is negatively associated with increases in short-term interest rates. This relationship is more pronounced in regions that are less in sync with the nationwide business cycle, and less pronounced for banks with relatively low capital or during periods of financial distress.
Download or read book Pushed Past the Limit How Japanese Banks Reacted to Negative Interest Rates written by Mr.Gee Hee Hong and published by International Monetary Fund. This book was released on 2018-06-13 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we investigate how negative interest rate policy (NIRP) introduced in January 2016 by the Bank of Japan (BoJ) affected Japanese banks' lending and risk taking behavior. The BoJ's announcement was an unexpected surprise to the market and was followed by a sharp drop in equity prices of Japanese financial firms. We exploit the cross-sectional variation in the change of share prices on the day of the announcement to measure banks' differential exposure to NIRP. We show that more exposed banks increased their credit and took on more risk compared to banks that were less exposed to negative rates.
Download or read book Managing the Sovereign Bank Nexus written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 2018-09-07 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.
Download or read book Monetary Policy and the Risk Taking Channel written by Leonardo Gambacorta and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the link between low interest rates and bank risk-taking. Monetary policy may influence banks' perceptions of, and attitude towards, risk in at least two ways: (i) through a search for yield process, especially in the case of nominal return targets; and (ii) by means of the impact of interest rates on valuations, incomes and cash flows, which in turn can modify how banks measure risk. Using a comprehensive dataset of listed banks, this paper finds that low interest rates over an extended period cause an increase in banks' risk-taking.
Download or read book Does Monetary Policy Affect Bank Risk taking written by Yener Altunbas and published by . This book was released on 2010 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the relationship between short-term interest rates and bank risk. Using a unique database that includes quarterly balance sheet information for listed banks operating in the European Union and the United States in the last decade, we find evidence that unusually low interest rates over an extended period of time contributed to an increase in banks' risk. This result holds for a wide range of measures of risk, as well as macroeconomic and institutional controls.
Download or read book Negative Interest Rates written by Luís Brandão Marques and published by International Monetary Fund. This book was released on 2021-03-03 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper focuses on negative interest rate policies and covers a broad range of its effects, with a detailed discussion of findings in the academic literature and of broader country experiences.
