Monetary Policy and Systemic Risk-taking in the Euro Area Banking Sector

AbstractWe provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through an increase in shadow banks’ total asset growth and their risk assets ratio. Our dataset covers the period 2000Q1–2018Q3 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, the aforementioned two indicators for the shadow banking sector. Based on vector autoregressive models for the euro area as a whole, we find a portfolio reallocation effect towards riskier assets and evidence for a general expansion of assets. Both effects last for roughly six quarters in the case of conventional monetary policy shocks, whereas for unconventional monetary policy shocks the responses are significant for two quarters only. Country-specific as well as sector-specific estimations confirm these findings for most of the euro area countries and all non-bank types, but also reveal some heterogeneity in the reaction of financial institutions.

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Investment Funds, Risk-Taking, and Monetary Policy in the Euro Area

SSRN Electronic Journal ◽

10.2139/ssrn.3941631 ◽

2021 ◽

Author(s):

Margherita Giuzio ◽

Christoph Kaufmann ◽

Ellen Ryan ◽

Lorenzo Cappiello

Keyword(s):

Monetary Policy ◽

Euro Area ◽

Risk Taking ◽

Investment Funds

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Competition, Regulation, and Stability in Banking: Theory and Evidence

Competition and Stability in Banking ◽

10.23943/princeton/9780691171791.003.0005 ◽

2016 ◽

Author(s):

Xavier Vives

Keyword(s):

Risk Taking ◽

Systemic Risk ◽

Banking Sector ◽

Regulatory Reform ◽

Reform Process ◽

Subprime Crisis ◽

Empirical Perspective ◽

The Relationship ◽

Excessive Risk Taking ◽

Excessive Risk

This chapter examines the relationship between competition and stability in the banking sector both from a theoretical and from an empirical perspective. It considers the competition–stability link from the standpoint of fragility both because of runs and because of excessive risk taking, along with the available evidence assessing how competition relates to systemic risk and how deregulation is associated with risk taking. It also explores the connection between market structure, consolidation, and internationalization and how it affects stability. Lessons from the subprime crisis are derived. The result of the analysis is to characterize the competition–stability trade-off, how regulation can alleviate it, and the need to coordinate competition policy and prudential regulation. The chapter concludes with a discussion of the regulatory reform process in the banking industry after the 2007–2009 crisis.

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