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This paper analyzes how U.S. monetary policy affects the pricing of dollar-denominated sovereign debt. We document that yields on dollardenominated sovereign bonds are highly responsive to U.S. monetary policy surprises—during both the conventional and unconventional policy regimes—and that the passthrough of unconventional policy to foreign bond yields is, on balance, comparable to that of conventional policy. In addition, a conventional U.S. monetary easing (tightening) leads to a significant narrowing (widening) of credit spreads on sovereign bonds issued by countries with a speculative-grade credit rating but has no effect on the corresponding weighted average of bilateral exchange rates for a basket of currencies from the same set of risky countries; this indicates that an unanticipated tightening of U.S. monetary policy widens credit spreads on risky sovereign debt directly through the financial channel, as opposed to indirectly through the exchange rate channel. During the unconventional policy regime, yields on both investment- and speculative-grade sovereign bonds move one-toone with policy-induced fluctuations in yields on comparable U.S. Treasuries. We also examine whether the response of sovereign credit spreads to US monetary policy differs between policy easings and tightenings and find no evidence of such asymmetry.

The literature on the risk-taking channel of monetary policy grew quickly, leading to scattered evidence. We examine this channel through different angles, exploring detailed information on loan origination and performance. Ex ante riskier borrowers receive more funding at the extensive margin when interest rates are lower. Ex post performance is independent of the level of interest rates at origination. Still, loans granted in periods of very low and stable interest rates show higher default rates once interest rates start to increase. Risk-taking is stronger among banks with lower capital ratios, suggesting that this channel may be linked to managerial incentives for risk-shifting.

This article investigates the impact of European Central Bank policies on credits considering financial and banking fragmentation. Using European data from the past decade, we estimate SVAR models to analyze the regional impact of conventional and unconventional measures on price and volume indicators of fragmentation. The risk-taking channel is studied using GVAR models to document the national consequences of this fragmentation. We find that unconventional measures increase credit in peripheral countries. Monetary policies alleviate fragmentation, but mostly in terms of price dispersion rather than credit volume. Finally, unconventional measures imply a rebalancing of European bank assets in favor of foreign currency denominated-assets.

This paper identifies a monetary policy channel through the risk pricing of bank debt in the market for jumbo certificates of deposit (jumbo CDs). Adverse policy shocks increase debt holder perceptions of bank default, increasing the risk premia for some banks, thereby decreasing their external funding of loans. The results show that contractionary policy increases the sensitivity of jumbo-CD spreads to leverage and asset risk for small banks, and to leverage for large banks. The results also show a distributional and aggregate effect on banking system jumbo CDs and total loans, producing a risk-pricing (or market discipline) channel. This channel has implications for monetary and regulatory policies, and financial stability.

In this paper, we provide a framework for modeling one risk-taking channel of monetary policy, the mechanism whereby financial intermediaries' incentives for liquidity transformation are affected by the central bank's reaction to a financial crisis. The anticipation of the central bank's reaction to liquidity stress gives banks incentives to invest in excessive liquidity transformation, triggering an \"interest rate trap\" - the economy will remain stuck in a long-lasting period of suboptimal, low interest rate equilibrium. We demonstrate that interest rate policy as a financial stabilizer is dynamically inconsistent, and the constrained efficient outcome can be implemented by imposing ex ante liquidity requirements.

Purpose. This study aims to explore the role of corporate governance (CG) in the financial soundness of banks in Pakistan.Design/methodology/approach. We analyzed the panel data of 21 commercial banks in Pakistan from 2006 to 2017. The CG score was measured in a composite manner based on: the audit committee, board size and independence, CEO duality, and managerial ownership. Financial soundness was measured using Z-scores based on the ROE & ROA of banks.Findings. The results show a positive role of CG in the financial soundness of banks in Pakistan. Further findings show that an increase in credit risk plays a negative role in banks’ financial soundness. Moreover, the interaction of CG and credit risk positively impact banks’ financial soundness. Specifically, the risk management side of CG ensures the banks’ financial soundness in Pakistan.Originality. The findings provide important policy implications for the policymakers of Pakistan who are responsible for financial soundness in the country, suggesting that the focus on risk-taking channels be maintained.

PurposeThe purpose of this paper is to investigate the risk-taking channel of monetary policy transmission in the Chinese banking industry. This study also investigates the role of various other factors in the risk-taking channel.Design/methodology/approachThis study used panel data from 2000 to 2012, and a dynamic panel model (Difference GMM) was applied.FindingsThe empirical findings of this paper suggest that loose monetary policy rates increase bank risk-taking. Unlike previous studies, the results of this paper suggest that the bank-specific factors (size, liquidity and capitalization) do not significantly affect the risk-taking channel. However, the market structure does have a stabilizing effect on monetary policy transmission and the risk-taking channel. Higher market power weakens the risk-taking channel of monetary policy transmission.Practical implicationsOf significance to the policymakers' point of view is that loose monetary policy induces banks to take excessive risks. However, such effects can be mitigated by encouraging a proper level of market power in banking markets.Originality/valueThis study investigated the risk-taking channel of monetary policy transmission for the Chinese banking industry. Due to the unique features of the People's Bank of China (PBC, Central Bank of China) policy, this study also contributes to the literature by comparing price-based and quantity-based monetary policy tools and their effectiveness in financial stability and monetary policy transmission. Furthermore, the role of market structure is also investigated in the risk-taking channel.

With the accelerated opening of China’s capital account, China’s banking sector is exposed to the impacts of cross-border capital flows. This article explores the impact of cross-border capital flows on banks’ risk-taking in China. Employing bank-level data of 50 Chinese commercial banks from 2005 to 2018 and a sys-GMM (system generalized method of moments) estimation method, we show that cross-border capital flows are positively associated with the risk-taking of Chinese commercial banks. Moreover, banks that are larger, more capital adequate, and more profitable are more sensitive to the degree of capital account openness toward risk-taking, and the capital account openness has the greatest influence on the profitability-driven bank risk-taking. Nevertheless, such positive effects of capital account openness on bank risk-taking may be weakened under bad macro-environment, indicated by low economic growth, poor legitimate law enforcement, and unstable political condition.

The objective of this research work is to identify the risk-taking channel of monetary policy in Cameroun. The credit risk is measure by the ratio of overdue debts on gross credit. The data used are those of 6 commercial banks collected from National Credit Council (CNC), within the period 2006-2016.The model is estimated with two methods: the Dynamic Ordinary Least Square and Fully Modify Ordinary Least Square. The Results show that the Central Banks key interest rate (TIAO) negatively affects the level of overdue debts granted by commercial banks in Cameroon. However, its impact is not significant considering the hole period. Robustness check reveals that, risk-taking channel exist in Cameroon after recent financial crisis. It also appears that credit supply and inflation significantly enhance credit risk; while banking capital significantly harms credit risk. In addition, a reduction of interest rates increases banks risk-taking especially when Gross Domestic Product growth rate is feeble. Therefore, we recommend that the monetay authorities avoid practicing low key interest rates over a long period, because it is likely to increase bank risk-taking.

This study is one of very few studies which have investigated if the risk-taking channels of monetary policy exist in China and which transmission mechanisms are more significant than others. This study uses a new estimation methodology, dynamic panel GMM estimation, to effectively reduce the endogeneity problem. Using data from forty-seven commercial banks in China during the period of 2006-2016, we find that the risk-taking channel of monetary policy exists in China for various monetary policy instruments, such as statuary reserve ratio, prime lending rate and the growth rate of broad money supply. China?s monetary policy influences bank?s risk-taking through the valuation effect, searching for yield effect, and competition effect, but not insurance effect. Monetary authorities in China should encourage moderate competition in the banking industry, while commercial banks in China should improve their risk management and innovate their business to lower the impact of monetary policy on bank?s risk-taking.