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.

Giovanni Dell'Ariccia, Deniz Igan, Luc Laeven, 04 February 2008

Over the last decade, the market for mortgage-backed securities has expanded dramatically, evolving from a small niche segment to a major portion of the overall U.S. mortgage market. The authors of CEPR DP6683 study the relationship between this recent boom and current delinquencies in the subprime mortgage market. Specifically, they analyze the extent to which this relationship can be explained by a decline in credit standards and excessive risk taking by lenders that is unrelated to improvements in underlying economic fundamentals.

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