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Monetary policy, risk-taking and pricing: Evidence from a quasi-natural experiment


Ioannidou, Vasso; Ongena, Steven; Peydró, José-Luis (2015). Monetary policy, risk-taking and pricing: Evidence from a quasi-natural experiment. Review of Finance, 19(1):95-144.

Abstract

We study the risk-taking channel of monetary policy in Bolivia, a dollarized country where monetary changes are transmitted exogenously from the USA. We find that a lower policy rate spurs the granting of riskier loans, to borrowers with worse credit histories, lower ex-ante internal ratings, and weaker ex-post performance (acutely so when the rate subsequently increases). Effects are stronger for small firms borrowing from multiple banks. To uniquely identify risk-taking, we assess collateral coverage,expected returns, and risk premia of the newly granted riskier loans, finding that their returns and premia are actually lower, especially at banks suffering from agency problems.

Abstract

We study the risk-taking channel of monetary policy in Bolivia, a dollarized country where monetary changes are transmitted exogenously from the USA. We find that a lower policy rate spurs the granting of riskier loans, to borrowers with worse credit histories, lower ex-ante internal ratings, and weaker ex-post performance (acutely so when the rate subsequently increases). Effects are stronger for small firms borrowing from multiple banks. To uniquely identify risk-taking, we assess collateral coverage,expected returns, and risk premia of the newly granted riskier loans, finding that their returns and premia are actually lower, especially at banks suffering from agency problems.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Accounting
Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:August 2015
Deposited On:09 Feb 2016 13:30
Last Modified:13 Jul 2020 15:31
Publisher:Oxford University Press
ISSN:1572-3097
OA Status:Green
Publisher DOI:https://doi.org/10.1093/rof/rfu035
Related URLs:http://rof.oxfordjournals.org/content/19/1/95.abstract (Publisher)
Other Identification Number:merlin-id:10051

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