Re-exploring the nexus between monetary policy and banks' risk-taking

Djatche, Melchisédek Joslem Ngambou

doi:10.1016/j.econmod.2019.01.016

Cited by 21 publications

(15 citation statements)

References 46 publications

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“…Moreover, it would be interesting to investigate the interaction effects of monetary policy and macroprudential regulation on the bank risk-taking in the period after the financial crisis, by expanding the analyzed time period after the year 2011. This possible direction of future research becomes more important in the light of the results obtained by more recent studies (Boungou, 2020 andNgambou Djatche, 2019) which reconsider the risk-taking channel of monetary policy by analyzing it on an extended period of time after the financial crisis.…”

Section: Discussionmentioning

confidence: 99%

The Risk-Taking Channel of Monetary Policy: Do Macroprudential Regulation and Central Bank Independence Influence the Transmission of Interest Rates?

Andrieş

Plescau

2017

SSRN Journal

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This study focuses on the risk-taking channel of monetary policy and its interaction with a supervisory-independence channel for commercial banks from Central and Eastern Europe, during the 2005-2011 period. Our results support the existence of an inverse relationship between expansionary monetary policy and bank risk-taking, meaning that very low interest rates lead to higher bank risk-taking. Also, our results show that the tight macroprudential regulation framework mitigates the negative impact of low rates. Furthermore, we show that central bank independence exerts the same beneficial effect on the bank risk-taking channel because results show a dampening effect of central bank independence on the relation between expansionary monetary policy and bank risk-taking. Moreover, our results demonstrate that the risk-taking channel of monetary policy is even stronger in times of financial crisis.

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Section: Discussionmentioning

confidence: 99%

The Risk-Taking Channel of Monetary Policy: Do Macroprudential Regulation and Central Bank Independence Influence the Transmission of Interest Rates?

Andrieş

Plescau

2017

SSRN Journal

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“…To draw a comprehensive picture of reserve accumulation's impact on bank activities, we utilize an additional measure to display bank financial stability. This measure has been widely employed in the banking literature in the form of the Z-score index (Ngambou Djatche, 2019;Niu, 2012), via the formula specified as:…”

Section: Methods Estimation Strategiesmentioning

confidence: 99%

“…where ROA denotes return on assets, capital represents the capital ratio and σ(ROA) indicates the standard deviation of ROA over the entire period under research. Inspired by the former literature, we take the natural logarithm of the Z-score index in the regression stage (Ngambou Djatche, 2019).…”

Section: Methods Estimation Strategiesmentioning

confidence: 99%

Bank lending in an emerging economy: How does central bank reserve accumulation matter?

Dang

2021

EJEM

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Purpose ─ The paper examines the impacts of the central bank's foreign exchange reserves on bank lending, captured by the dimensions of quantity (loan growth) and quality (credit risk).Methods ─ This research analysis is based on bank-year observations in Vietnam during 2007-2019 and employs the two-step system Generalized Method of Moments in dynamic panels.Findings ─ This study finds that banks tend to increase their loan growth rate in response to reserves accumulation. Banks also expand loans and cash items on their asset structure while subsequently slashing total security investments and disaggregate government bond holdings. Our results also indicate that the central bank reserves accumulation is associated with less credit risk and more financial stability of the banking system.Implication ─ This paper supports the notion that reserve accumulation could be a complementary monetary policy tool for lending navigation and economic growth. Besides, reserve interventions may be used for financial stability, given the finding that it is found to curtail bank credit risk and financial instability.Originality ─ This paper contributes to the literature by focusing on critical aspects of bank lending, including quantity and quality, to paint a bigger picture of the benefits and costs of reserve accumulation and decompose bank asset portfolios into disaggregate components, thereby providing more insight into bank responses.

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“…Third, the fairly recent implementation of macroprudential tools (in the aftermath of the 2008 financial crisis) makes it hard to accurately assess their effectiveness. Besides, for example in the European Union, the effectiveness of macroprudential policy is hard to assess since, as noted by Nettekoven (2020), the same macroprudential measure is sometimes used for different macroprudential objectives by member states, or different macroprudential measures are used for the same macroprudential objective. However, it is widely recognized that macroprudential policies are effective in ensuring stability at some extend.…”

Section: The Use and Effectiveness Of Prudential Tools On The Economymentioning

confidence: 99%

Monetary policy, prudential policy and bank's risk‐taking: A literature review

Djatche

2021

Journal of Economic Surveys

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The pre-crisis low interest rates environment is raising concerns among researchers and policymakers about its impact on the triangle prudential policymonetary policy -bank's risk-taking. While interest rates are set at low level for inflationary and economic growth reasons, they may lead banks to take more risk, jeopardizing the financial system and impeding the recovery. This paper provides a literature review, on the one hand, on the interaction of monetary and prudential policies through their impacts on bank's risk-taking, and on the other hand, on the issues of their coordination. Monetary policy appears to have ambiguous effects on banks' profitability, and then, on banks' risk-taking behaviour. Despite monetary and prudential policies pursue different objectives, they inevitably interact, raising challenges that face policymakers. Albeit it is argued that monetary policy alone is not sufficient to maintain macroeconomic and financial stability, and that it should be coordinated with prudential policy, the form of this coordination is not clear-cut.

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Re-exploring the nexus between monetary policy and banks' risk-taking

Cited by 21 publications

References 46 publications

The Risk-Taking Channel of Monetary Policy: Do Macroprudential Regulation and Central Bank Independence Influence the Transmission of Interest Rates?

The Risk-Taking Channel of Monetary Policy: Do Macroprudential Regulation and Central Bank Independence Influence the Transmission of Interest Rates?

Bank lending in an emerging economy: How does central bank reserve accumulation matter?

Monetary policy, prudential policy and bank's risk‐taking: A literature review

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