Giovanni Dell'Ariccia, Luc Laeven, Gustavo Suarez, 02 August 2016

The Global Crisis has renewed debate about the relationship between short-term interest rates and bank risk taking. Theory offers ambiguous and conflicting predictions. This column explores the relationship using confidential bank-level data from the US. Bank risk taking is found to be negatively associated with short-term interest rates, and this is more pronounced for highly capitalised banks. These findings can help inform the design of monetary policy.

Events

CEPR Policy Research