Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/88726 
Year of Publication: 
2013
Series/Report no.: 
SAFE Working Paper No. 8
Publisher: 
Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe, Frankfurt a. M.
Abstract: 
We assess the effects of monetary policy on bank risk to verify the existence of a risk-taking channel - monetary expansions inducing banks to assume more risk. We first present VAR evidence confirming that this channel exists and tends to concentrate on the bank funding side. Then, to rationalize this evidence we build a macro model where banks subject to runs endogenously choose their funding structure (deposits vs. capital) and risk level. A monetary expansion increases bank leverage and risk. In turn, higher bank risk in steady state increases asset price volatility and reduces equilibrium output.
Subjects: 
bank runs
risk taking
monetary policy
JEL: 
E5
G2
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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