ISEG 2S SEMINARS | Monetary Policy and Bank Risk-Taking: Evidence from the Corporate Loan Market

September 21st | 11:30 – 13:00 | Delta Room | Quelhas 6 Building

Presentation:
Monetary Policy and Bank Risk-Taking: Evidence from the Corporate Loan Market

Presenter:
João Cabral dos Santos
Federal Reserve Bank of New York

Abstract
Our investigation of banks' corporate loan pricing policies in the United States over the past two decades finds that monetary policy is an important driver of banks' risk taking incentives. We show that banks charge riskier borrowers (relative to safer borrowers) a smaller premium in periods of easy monetary policy compared to periods of tight monetary policy.
This interest rate discount is robust to borrower-, loan-, bank-specific and macroeconomic factors, as well as to different types of unobserved heterogeneity at the bank and firm levels.
Using individual bank information about lending standards from the Senior Loan Officers Opinion Survey, we unveil evidence that the interest rate discount that riskier borrowers receive in periods of easy monetary policy is prevalent among banks with greater risk appetite.
This finding confirms that the loan pricing discount that we observe is indeed driven by the bank risk-taking channel of monetary policy.

The speaker will be at ISEG during the afternoon after the talk, Professors and researchers interested in meeting the speaker should check the available meeting slots with Margarida Abreu .

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