Monetary Policy, Bank Leverage, and Financial Stability
TLDR
In this article, the authors developed a model to assess how monetary policy rates affect bank risk-taking, showing that a reduction in the risk-free rate increases lending profitability by reducing funding costs and increasing the surplus the monopolistic bank extracts from borrowers.Abstract:
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.read more
Citations
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Financial Stability and Monetary Policy Reaction: Evidence from the GCC Countries
TL;DR: In this paper , the authors investigated the interaction between monetary policy and financial stability in the Gulf Cooperation Council (hereafter GCC) countries by introducing a new composite financial stability index to monitor the financial vulnerabilities and crisis periods.
Journal ArticleDOI
Vliv měnových podmínek na jednotlivé kategorie cen v České Republice v kontextu měnové a makroobezřetnostní politiky
Lukáš Pfeifer,Zdeněk Pikhart +1 more
TL;DR: In this article, the authors deal with the theoretical issues of macro-prudential policy, the influence of risk channel of monetary policy on financial stability and the cooperation of macro and monetary policy, respectively the compatibility of the objectives of these policies.
Journal ArticleDOI
Monetary Policy, Capital Regulation and Bank Risk-taking:Evidence From China
Hai Jiang,Chaowen Yuan +1 more
TL;DR: In this article , the authors investigated the monetary policy's risk-taking channel in China's banking sector and revealed how capital buffer affects this channel in both theoretical and empirical analyses, and found that well-capitalized banks undertake less risk than those under-performing banks, which is opposite to the empirical evidence from the US.
Journal ArticleDOI
Impact of Executive Remuneration and Firm Leverage on Firm Stability: Lessons from European Firms
TL;DR: In this article , the authors examined the impact of executive remuneration and firms' leverage on firms' stability as measured by winsorized Zscore (wZscore), which corresponds to the Altman Zscore, which increases as default risk decreases.
Journal ArticleDOI
Transmission Mechanism of Monetary Policy Through Asset Price and Exchange Rate Channel in Indonesia
TL;DR: In this article , the authors analyzed the effectiveness of monetary policy transmission through bond yields compared to the other channels, such as asset price and exchange rate channels, and concluded that the two channels are ineffective in transmitting monetary policy with the target of economic growth in Indonesia.
References
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Journal Article
Incentive-compatible debt contracts: The one-period problem
Douglas Gale,Martin Hellwig +1 more
TL;DR: In this article, it was shown that the optimal, incentive-compatible debt contract is the standard debt contract and that the second-best level of investment never exceeds the first-best and is strictly less when there is a positive probability of costly bankruptcy.