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Does Monetary Policy Influence Banks' Perception of Risks?
Simona Malovana
Dominika Kolcunova
Vaclav Broz
This paper studies the extent to which monetary policy may affect banks' perception of credit risk and the way banks measure risk under the internal ratings-based approach. Specifically, we analyze the effect of different monetary policy indicators on banks' risk weights for credit risk. We present robust evidence of the existence of the risk-taking channel in the Czech Republic. Further, we show that the recent prolonged period of accommodative monetary policy has been instrumental in establishing this relationship. Finally, we obtain comparable results by extending the analysis to cover all the Visegrad Four countries. The presented findings have important implications for the prudential authority, which should be aware of the possible side-effects of monetary policy on how banks measure risk.
Simona Malovana & Dominika Kolcunova & Vaclav Broz, 2017. "Does Monetary Policy Influence Banks' Perception of Risks?," Working Papers 2017/9, Czech National Bank.
Handle: RePEc:cnb:wpaper:2017/9
File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2017_09.pdf
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Cited by:
Malovaná, Simona & Kolcunová, Dominika & Brož, Václav, 2019. "Does monetary policy influence banks' risk weights under the internal ratings-based approach?," Economic Systems, Elsevier, vol. 43(2), pages 1-1.
Banks; financial stability; internal ratings-based approach; risk-taking channel;
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
NEP fields
This paper has been announced in the following NEP Reports:
NEP-BAN-2018-01-22 (Banking)
NEP-CBA-2018-01-22 (Central Banking)
NEP-EEC-2018-01-22 (European Economics)
NEP-MAC-2018-01-22 (Macroeconomics)
NEP-MON-2018-01-22 (Monetary Economics)
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