Monetary Policy, Bank Leverage, and Financial Stability:
This paper develops a model to assess how monetary policy rates affect bank risk-taking. In the model, a reduction in the risk-free rate increases lending profitability by reducing funding costs and increasing the surplus the monopolistic bank extracts from borrowers. Under limited liability, this i...
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1. Verfasser: | |
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Format: | Elektronisch E-Book |
Sprache: | English |
Veröffentlicht: |
Washington, D.C
International Monetary Fund
2011
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Schriftenreihe: | IMF Working Papers
Working Paper No. 11/244 |
Online-Zugang: | UBW01 UEI01 LCO01 SBR01 UER01 SBG01 UBG01 FAN01 UBT01 FKE01 UBY01 UBA01 FLA01 UBM01 UPA01 UBR01 FHA01 FNU01 BSB01 TUM01 Volltext |
Zusammenfassung: | This paper develops a model to assess how monetary policy rates affect bank risk-taking. In the model, a reduction in the risk-free rate increases lending profitability by reducing funding costs and increasing the surplus the monopolistic bank extracts from borrowers. Under limited liability, this increased profitability affects only upside returns, inducing the bank to take excessive leverage and hence risk. Excessive risk-taking increases as the interest rate decreases. At a broader level, the model illustrates how a benign macroeconomic environment can lead to excessive risk-taking, and thus it highlights a role for macroprudential regulation |
Beschreibung: | 1 Online-Ressource (37 p) |
ISBN: | 1463923236 9781463923235 |
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illustrated | Not Illustrated |
index_date | 2024-07-03T20:13:19Z |
indexdate | 2024-07-10T09:35:27Z |
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open_access_boolean | |
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spelling | Valencia, Fabian Verfasser aut Monetary Policy, Bank Leverage, and Financial Stability Valencia, Fabian Washington, D.C International Monetary Fund 2011 1 Online-Ressource (37 p) txt rdacontent c rdamedia cr rdacarrier IMF Working Papers Working Paper No. 11/244 This paper develops a model to assess how monetary policy rates affect bank risk-taking. In the model, a reduction in the risk-free rate increases lending profitability by reducing funding costs and increasing the surplus the monopolistic bank extracts from borrowers. Under limited liability, this increased profitability affects only upside returns, inducing the bank to take excessive leverage and hence risk. Excessive risk-taking increases as the interest rate decreases. At a broader level, the model illustrates how a benign macroeconomic environment can lead to excessive risk-taking, and thus it highlights a role for macroprudential regulation Online-Ausg http://elibrary.imf.org/view/IMF001/12254-9781463923235/12254-9781463923235/12254-9781463923235.xml Verlag URL des Erstveröffentlichers Volltext |
spellingShingle | Valencia, Fabian Monetary Policy, Bank Leverage, and Financial Stability |
title | Monetary Policy, Bank Leverage, and Financial Stability |
title_auth | Monetary Policy, Bank Leverage, and Financial Stability |
title_exact_search | Monetary Policy, Bank Leverage, and Financial Stability |
title_exact_search_txtP | Monetary Policy, Bank Leverage, and Financial Stability |
title_full | Monetary Policy, Bank Leverage, and Financial Stability Valencia, Fabian |
title_fullStr | Monetary Policy, Bank Leverage, and Financial Stability Valencia, Fabian |
title_full_unstemmed | Monetary Policy, Bank Leverage, and Financial Stability Valencia, Fabian |
title_short | Monetary Policy, Bank Leverage, and Financial Stability |
title_sort | monetary policy bank leverage and financial stability |
url | http://elibrary.imf.org/view/IMF001/12254-9781463923235/12254-9781463923235/12254-9781463923235.xml |
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