Monetary Policy and Bank Risk-Taking: Evidence from the Corporate Loan Market
50 Pages Posted: 25 Jan 2012 Last revised: 31 Jul 2018
Date Written: December 7, 2013
Our study of banks' corporate loan pricing policies in the United States over the past two decades shows that the loan spreads between riskier and safer borrowers decrease in periods of easy compared to periods of tight monetary policy. This interest rate discount is robust to borrower-, loan-, and bank-specific factors, macroeconomic factors and various types of unobserved heterogeneity at the bank and firm levels. Using individual bank information about lending standards from the Senior Loan Officers Opinion Survey (SLOOS), we unveil evidence that the interest rate discount for riskier borrowers in periods of easy monetary policy is prevalent among banks with greater risk appetite. This finding constitutes solid evidence in support of the bank risk-taking channel of monetary policy.
Keywords: Risk-taking channel, monetary policy, loan spreads
JEL Classification: G21
Suggested Citation: Suggested Citation