In the literature, the question of central banks' responsibility for triggering crises is raised when sustainable low interest rates lead to excessive banks' risk exposures. However, such portfolio choices mainly depend on the various returns of assets and on the official interest rate, taking into account that the bank lending channel is affected by the bank capital channel. On the basis of a simple theoretical model including a solvency ratio, we show that during recessions a credit rationing is observed together with a flight to quality; during expansions monetary policy can induce both a fall in credit activity and an increase in financial instability. Then, regulatory capital arbitrages appear and still weaken productive loans. Conclusions can be drawn in terms of prudential policy, as the central bank may be powerless face to banking strategies if the regulatory framework is procyclical.

No abstract

The 2007-2008 crisis highlighted liquidity management troubles. We witness a real estate asset price boom during the pre-crisis period and a difficulty for banks to raise funding afterwards. Consequently, bank choices in response to the conduct of the monetary policy along the cycle can be studied. Despite usual financial accelerator, the excessive (lack of) confidence of banks in the upward (down) phase explains procyclical balance sheet movements. Moreover, the monetary policy effects on bank behaviors vary according to their initial specifications. From a theoretical point of view, this paper examines the response of the banking sector to monetary authorities impulses, in function of their initial characteristics. So, the paper highlights a theoretical model, based on accounting identities, in which banks are distinguished in different categories according to their level of capitalization and liquidity. The principal result is that the less capitalized and liquid banks have more procyclical behaviors.

The increase in the amount of commercial papers and the real estate price boom before the 2007-2008 crisis witness a preference for speculative assets by banks. In contrast, after the crisis, banks tended to opt for safe assets, and especially during the Eurozone debt crisis with a sharp increase in deposit facilities from July 2011 to December 2011. This credit allocation can be at the detriment of productive assets; therefore, it can affect the real economy. This paper analyzes empirically the credit allocation of monetary and financial institutions in countries of the European Union over the period 1997-2013. Our results show that risk aversion stands as a main explanation of balance sheet movements. If risk aversion is largely influenced by monetary policy before the crisis, risk perception is uncorrelated to monetary policy afterwards.

No abstract