Title Bank leverage and monetary policy's risk-taking channel : evidence from the United States / prepared by Giovanni Dell'Ariccia, Luc Laeven and Gustavo Suarez

Published Washington, D.C. : International Monetary Fund, 2013

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Description 1 online resource (39 pages :) : illustrations Series IMF working paper ; WP/13/143 IMF working paper ; WP/13/143. Contents Cover; Contents; I. Introduction; II. A Simple Model of Interest Rates, Leverage, and Bank Risk Taking; III. Empirical Methodology; A. Regression Model of Bank Risk Taking; B. Financial Stability Considerations and Monetary Policy: Evidence from FOMC Minutes; IV. Data and Descriptive Statistics; A. Survey of Terms of Business Lending; B. Datasets and Variable Definitions; C. Descriptive Statistics of Main Variables; V. Empirical Results; A. Main Results; B. Robustness Checks; C. Long Periods with Low Interest Rates; VI. Conclusions; References; Figures; 1. Interest Rates and Bank Risk Taking Tables1. Summary Statistics; 2. Loan Risk Ratings and the Federal Funds Rate; 3. Loan Risk Ratings, the Federal Funds Rate, and Loan Characteristics; 4. Risk Ratings, the Federal Funds Rate, and Bank Capital; 5. Loan Risk Ratings, the Federal Funds Rate, and Bank Capital for Loans Not Under Commitment; 6. Loan Risk Ratings, the Federal Funds Rate, and Bank Capital in Small Banks; 7. Loan Risk Ratings, the Federal Funds Rate, and Bank Capital in States Without Large Banks; 8. Loan Risk Rating, the Federal Funds Rate, and Bank Capital and State Cyclicality 9. Loan Risk Ratings, the Federal Funds Rate, and Bank Capital during Periods of Bank Distress10. Loan Risk Ratings, Bank Capital, and Regional Monetary Policy Conditions; 11. Loan Risk Rating, the Federal Funds Rate, Bank Capital, and the State of the Economy; 12. Loan Risk Rating, Bank Capital, and Long Periods of Low Interest Rates; Appendix Table 1. Frequency of Keywords Appearing in FOMC Minutes Summary 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 Bibliography Includes bibliographical references Notes English Print version record Subject Risk management -- United States Monetary policy -- United States Monetary policy Risk management United States Form Electronic book Author Laeven, Luc, author. Suárez, Gustavo, author. International Monetary Fund, issuing body. ISBN 1484398866 9781484398869 1484305671 9781484305676 148433373X 9781484333730 1484381130 9781484381137 ISSN 2227-8885

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