Holdings: Monetary Policy, Bank Leverage, and Financial Stability

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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Bibliographic Details
Main Author:	Valencia, Fabian (Author)
Format:	Electronic eBook
Language:	English
Published:	Washington, D.C International Monetary Fund 2011
Series:	IMF Working Papers Working Paper No. 11/244
Online Access:	UBW01 UEI01 LCO01 SBR01 UER01 SBG01 UBG01 FAN01 UBT01 FKE01 UBY01 UBA01 FLA01 UBM01 UPA01 UBR01 FHA01 FNU01 BSB01 TUM01 Volltext
Summary:	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
Physical Description:	1 Online-Ressource (37 p)
ISBN:	1463923236 9781463923235

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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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