Research On The Impact Of Monetary Policy On Bank Risk-Taking

After the outbreak of the financial crisis, some scholars have attributed the crisisto the Fed’s loose monetary policy. They think that the sustained low interest ratesstimulate the asset price bubbles, excessive expansion of credit scale, banks and otherfinancial institutions have higher leverage, so as to take on too much risk, andfinancial system risk accumulation, which result in a crisis. After the financial crisis,therefore, the monetary authorities and scholars have paid attention to the impact ofmonetary policy to financial stability. In this paper, we study the impact of monetaryon bank risk-taking, is of great significance to maintain the stability of the financialsector.Firstly, the measure of bank risk-taking, the factors influcing bank risk-taking aswell as literature of the monetary policy’s impact on bank risk-taking were reviewed.Secondly, select the bank bankruptcy risk Z-score, the proportion of risk-weightedassets and non-performing loan ratio as proxy variable of bank risk exposures, thegrowth of money supply M2, the one-year benchmark deposit rate and legaldeposit-reserve ratio as the proxy variable of monetary policy, select the data of14listed Banks from2003to2012as the research sample, using system GMM methodempirically the monetary policy’s impact on bank risk-taking, and analyses themacroeconomic situation, the banking market structure and bank characteristicsvariables’ influence on bank risk-taking. Third, on the basis of verifying the montarypolicy’s impact on bank risk-taking, this paper test the heterogeneity of the risk-takingchannel of monetary policy, analysing whether the effect of montetary policy on bankrisk-taking depend on the different capital adequacy ratio. Finally, propose somerecommendations about the monetary authorities to develop and implement monetarypolicy, with the use of prudential supervision and commercial banks to deal with therisk of policy.The main conclusions of the article are:(1) The bank risk-taking channel of monetary policy exists in our country,showing a significant negative correlation between monetary policy and bankrisk-taking. Loose monetary policy would increase the willingness and commitmentlevels of bank risk-taking, tighter monetary policy would reduce the willingness andcommitment level of bank risk-taking.(2) Among the factors influencing monetary Policy associated with bank risk-taking, macroeconomic environment, the better, the lower the bank risk-taking;existence of "competition-stability", the more intense market competition, the lowerthe bank risk-taking; capital more adequate, the higher the liquidity ratio of the bank,the lower the bank risk-taking; negative correlation between the size of the bank’sassets and its risk-taking, but the correlation is weak; relationship between the level ofthe bank’s profitability and risk having uncertainty.(3) The bank risk-taking channel of monetary policy has heterogeneity. Differentcapital adequacy ratio banks’ bank risk-taking have different reactions for the changesin monetary policy, higher capital adequacy ratio of banks to withstand the impact ofmonetary policy, the stronger, the less sensitive to changes in monetary policyresponse.