Monetary Policy and Bank Risk-Taking
IMF Staff Position Notes, July 27, 2010
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- Monetary Policy and Bank Risk-Taking
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Bibliographic details
- Authors: Giovanni Dell'Ariccia, Gianni De Nicolo, Luc Laeven, Fabian Valencia
- Published: July 27, 2010
- Series: IMF Staff Position Notes
- DOI: https://doi.org/10.5089/9781455253234.004
Main findings
- The paper broadly supports the view that monetary policy easing induces greater risk-taking by banks.
- The relationship between real interest rates and banking risk is more complex than a simple one-to-one linkage.
- The impact of monetary policy on bank risk ultimately depends on how much "skin in the game" banks have.
Analysis and interpretation
- Monetary policy easing is associated with increased bank risk-taking behavior.
- Real interest rates and banking risk interact in a nuanced way; outcomes vary with bank-specific incentives and balance-sheet structures.
- The central message aligns broadly with conclusions in the MCM board paper “Central Banking Lessons from the Crisis.”
Policy implications and integration of frameworks
- Findings inform the debate on the role of financial stability considerations in monetary policy decisions.
- Results are relevant to designing coordination between macro-prudential policy and monetary policy frameworks to address risk-taking incentives.