Discretionary macroprudential policies aim to be countercyclical by adjusting risk-taking across the financial cycle. This column argues that the opposite effect may happen in certain cases. Depending on how regulators measure risk and how they react, the eventual outcome may well be procyclical, with serious unintended consequences.
Jon Danielsson, Robert Macrae, Dimitri Tsomocos, Jean-Pierre Zigrand, 15 December 2016
Michiel van Leuvensteijn, Adrian van Rixtel, Bing Xu, 12 June 2016
The unprecedented accommodative monetary policy stance implemented across the world in recent years has pushed interest rates to the zero lower bound, and even into negative territory. Based on an analysis of regulated floors and ceilings in bank loan and deposit interest rates in China, this column argues that when lending rates are close to regulatory imposed floors and hence cannot fall much further, the measurement of bank competition using more traditional measures of competition is flawed. This is important because lower bank competition has detrimental effects on the pass–through of interest rate changes and reduces risk-taking by banks.
The Editors, 30 March 2012
This new CEPR eReport is devoted to exploring the general issue of the origins of excessive risk-taking in the banking industry. In doing so, it provides the analytical ammunition required to rigorously examine regulatory policy at a time when it is undergoing a complete metamorphosis.
Richard Baldwin, 30 March 2012
Risk-taking by banks played a critical role in the global crisis and Eurozone crisis. This column introduces a new eReport that focuses on four aspects of excessive risk-taking by banks, highlighting the causes and the cures. The eReport applies the best available theory and data, bringing together the main insights and views that have emerged from the crisis.
Steven Ongena, José-Luis Peydró, 25 October 2011
Do low interest rates encourage excessive risk-taking by banks? This column summarises two studies analysing the impact of short-term interest rates on the risk composition of the supply of credit. They find that lower rates spur greater risk-taking by lower-capitalised banks and greater liquidity risk exposure.
Ruediger Fahlenbrach, Robert Prilmeier, René Stulz, 27 May 2011
Crises are a regular event in financial markets. But do banks that have been hit particularly hard in one crisis learn from the experience and suffer less in future crises? This column suggests not. It shows that banks particularly hard hit by the 1998 financial crisis were also badly affected by the recent financial crisis. It blames the high-risk business models on which these banks rely.
Thomas Gehrig, Lukas Menkhoff, 02 March 2009
Bonuses are seen as drivers of greed, irresponsibly, and short-sighted behaviour. This column discusses the research on how bonuses affect bankers’ behaviour. It argues that bonuses are a valuable tool for guiding managers to do what’s right for corporations and even society. The debate should be about performance criteria and sustainable goals, not the size of bonus payments.
Ulrike Malmendier, 08 August 2008
Do people’s personal experiences of economic fluctuations affect their attitudes to risk? Ulrike Malmendier of the University of California, Berkeley, talks to Romesh Vaitilingam about her research on the impact of stock market returns and inflation early in life on risk-taking later in life. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Vasso Ioannidou, Steven Ongena, José-Luis Peydró, 17 October 2007
Do low levels of short-term interest encourage risk-taking that can be considered ‘excessive’? Do low interest rates imply higher credit risk in the short-run? In the medium-run? New empirical research suggests that the answers are a resounding ‘yes’, a subtle ‘no’ and a qualifying ‘it depends’.