What Does Peer-to-Peer Lending Evidence Say About the Risk-taking Channel of Monetary Policy?
60 Pages Posted: 20 Jun 2019 Last revised: 7 Oct 2020
Date Written: October 5, 2020
This paper uses loan application-level data from a peer-to-peer lending platform to study the risk-taking channel of monetary policy. By employing a direct ex-ante measure of risk-taking and estimating the simultaneous equations of loan approval and loan amount, we provide evidence of monetary policy's impact on a nonbank financial institution's risk-taking. We find that the search-for-yield is the main driving force of the risk-taking effect, while we do not observe consistent findings of risk-shifting from the liquidity change. Monetary policy easing is associated with a higher probability of granting loans to risky borrowers and greater riskiness of credit allocation. However, these changes do not necessarily relate to a larger loan amount on average.
Keywords: Monetary Policy, Risk-taking, Nonbank Financial Institution, Peer-to-Peer Lending, Search-for-yield, Risk-shifting
JEL Classification: E52, G23
Suggested Citation: Suggested Citation