Collateralized borrowing and risk taking at low interest rates

Cociuba, Simona E.; Shukayev, Malik; Ueberfeldt, Alexander

doi:10.1016/j.euroecorev.2016.02.005

Cited by 23 publications

(23 citation statements)

References 51 publications

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“…All in all, misperception of banks and firms' riskiness increases systemic risk through the latent and gradual degradation of their balance sheets when the interest rates are too low too long. Against this consensus, Cociuba et al (2016) are rather skeptical. Certainly, low policy rates reduce the returns on safe assets and lead banks to shift investments towards riskier assets (portfolio effect).…”

Section: The Theoretical Foundations Of the Systemic Risk-taking Channelmentioning

confidence: 99%

Monetary policy and long-run systemic risk-taking

Colletaz

Levieuge

Popescu

2018

Journal of Economic Dynamics and Control

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As an extension to the literature on the risk-taking channel of monetary policy, this paper studies the existence of a systemic risk-taking channel (SRTC) in the Eurozone, through an original macroeconomic perspective based on causality measures. Because the SRTC is effective after an "incubation period", we make a distinction between short and long-term causality, following the methodology proposed by Dufour and Taamouti (2010). We find that causality from monetary policy to systemic risk, while not significant in the very short term, robustly represents 75 to 100% of the total dependence between the two variables in the long run. Reverse causality is rejected: systemic risk did not influence the policy of the European Central Bank before the global financial crisis. However, central banks must be aware that a too loose monetary policy stance may be conducive to a build-up of systemic risk.

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Section: The Theoretical Foundations Of the Systemic Risk-taking Channelmentioning

confidence: 99%

Monetary policy and long-run systemic risk-taking

Colletaz

Levieuge

Popescu

2018

Journal of Economic Dynamics and Control

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“…For simplicity, we do not model these loans, and assume that intermediaries are endowed with the production technology of noncorporate businesses. Recovery rate in bankruptcy 42.0 42.0 a For more details on the data moments, see Cociuba et al (2016). b Total output is measured as the real value added for the U.S. business sector.…”

Section: A Calibrationmentioning

confidence: 99%

Managing Risk Taking With Interest Rate Policy and Macroprudential Regulations

2018

Self Cite

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We develop a model in which a financial intermediary's investment in risky assets-risk taking-is excessive due to limited liability and deposit insurance, and characterize the policies that implement efficient risk taking. In the calibrated model, combining interest rate policy with state-contingent macroprudential regulations-either capital or leverage regulation, and a tax on profits-achieves efficiency. Interest rate policy mitigates excessive risk taking by altering the return and the supply of collateralizable safe assets. In contrast to commonly used capital regulation, leverage regulation has stronger effects on risk taking and calls for higher interest rates. (JEL E44, E52, G11, G18) * We thank Klaus Adam, V.

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“…Instead, in Cociuba, Shukayev and Ueberfeldt (2016) banks choose between risky and safe investments, while leverage is given. 4 In the macro models of Angelini, Neri and Panetta (2014), De Paoli and Paustian (2017), and Collard et al (2017) there is a macroprudential regulator, in addition to the monetary authority.…”

Section: Related Literaturementioning

confidence: 99%

Will macroprudential policy counteract monetary policy’s effects on financial stability?

Agur

Demertzis

2019

The North American Journal of Economics and Finance

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Collateralized borrowing and risk taking at low interest rates

Cited by 23 publications

References 51 publications

Monetary policy and long-run systemic risk-taking

Monetary policy and long-run systemic risk-taking

Managing Risk Taking With Interest Rate Policy and Macroprudential Regulations

Will macroprudential policy counteract monetary policy’s effects on financial stability?

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