In Search for Yield? Survey-Based Evidence on Bank Risk Taking

60 Pages Posted: 8 Jun 2016

See all articles by Claudia M. Buch

Claudia M. Buch

Deutsche Bundesbank

Sandra Eickmeier

Deutsche Bundesbank; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Esteban Prieto

affiliation not provided to SSRN

Date Written: 2011

Abstract

There is growing consensus that the conduct of monetary policy can have an impact on stability through the risk-taking incentives of banks. Falling interest rates might induce a 'search for yield' and generate incentives to invest into risky activities. This paper provides evidence on the link between monetary policy, commercial property prices, and bank risk taking. We use a factor-augmented vector autoregressive model (FAVAR) for the U.S. for the period 1997-2008. We include standard macroeconomic indicators and factors summarizing information provided in the Federal Reserve's Survey of Terms of Business Lending. These data allow modeling the reactions of banks' new lending volumes and prices as well as the riskiness of new loans. We do not find evidence for increased risk taking for the entire banking system after a monetary policy loosening or an unexpected increase in property prices. This masks, however, important differences across banking groups. Small domestic banks increase their exposure to risk, foreign banks lower risk, and large domestic banks do not change their risk exposure.

Keywords: FAVAR, bank risk taking, macro-finance linkages, monetary policy, commercial property prices

JEL Classification: E44, G21

Suggested Citation

Buch, Claudia M. and Eickmeier, Sandra and Prieto, Esteban, In Search for Yield? Survey-Based Evidence on Bank Risk Taking (2011). Bundesbank Series 1 Discussion Paper No. 2011,10, Available at SSRN: https://ssrn.com/abstract=2785401 or http://dx.doi.org/10.2139/ssrn.2785401

Claudia M. Buch (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Sandra Eickmeier

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Strasse 14
Frankfurt/Main D-60431
Germany

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

Esteban Prieto

affiliation not provided to SSRN

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