Monetary Policy and Bank Risk-Taking: Evidence from Emerging Economies

42 Pages Posted: 1 Oct 2015 Last revised: 18 Oct 2015

See all articles by Bang Nam Jeon

Bang Nam Jeon

Drexel University - Department of Economics & International Business; Drexel University-School of Economics

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management; Pennsylvania State University Harrisburg

Minghua Chen

Southwestern University of Finance and Economics - Research Institute of Economics and Management

Rui Wang

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management

Date Written: October 2015

Abstract

This paper addresses the impact of monetary policy on banks’ risk-taking levels by using the bank-level panel data from more than 1000 banks in 33 emerging economies during 2000-2012. We find that, consistent with the proposition of the “bank risk-taking channel” of monetary policy transmission, banks’ riskiness increases when monetary policy is eased. The effect is more conspicuous in small and less liquid banks, and in countries with a stronger deposit insurance scheme and a fixed exchange rate regime. In addition, we find that the monetary policy-bank risk nexus is dampened in more concentrated banking markets and when monetary policy is more transparent.

Keywords: Monetary policy, Bank risk-taking, Emerging economies

JEL Classification: E52, G21, E44

Suggested Citation

Jeon, Bang Nam and Wu, Ji and Chen, Minghua and Wang, Rui, Monetary Policy and Bank Risk-Taking: Evidence from Emerging Economies (October 2015). Available at SSRN: https://ssrn.com/abstract=2667465 or http://dx.doi.org/10.2139/ssrn.2667465

Bang Nam Jeon (Contact Author)

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Drexel University-School of Economics ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun St
Chengdu, Sichuan 610074
China

Pennsylvania State University Harrisburg ( email )

777 West Harrisburg Pike
Middletown, PA 17057
United States

Minghua Chen

Southwestern University of Finance and Economics - Research Institute of Economics and Management ( email )

Gezhi Building 1201
555 Liutai Revenue, Wenjiang District
Chengdu, Sichuan 610074
China

Rui Wang

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun Street
Chengdu, Sichuan 610074
China

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