An Empirical Assessment of the Risk-Taking Channel
34 Pages Posted: 23 Aug 2009 Last revised: 3 Oct 2009
Date Written: August 22, 2009
We investigate the risk-taking channel of monetary policy at the global level using a comprehensive database of listed banks. Our sample includes quarterly information for all listed banks operating in the European Union (EU15) and the United States during and prior to the period of the financial turmoil. We find evidence of a significant link between monetary policy looseness – calculated using both the Taylor rule and the natural rate – and bank risk taking. This result holds for a wide range of indicators of banks' risk and macroeconomic controls.
Keywords: bank risk, credit crisis, risk taking channel, monetary policy
JEL Classification: E44, E55, G21
Suggested Citation: Suggested Citation