Simona Malovaná, Dominika Kolcunová, Václav Brož
This paper studies the extent to which monetary policy may affect banks’ perception of credit risk and the way banks measure risk under the internal ratings-based approach. Specifically, we analyze the effect of different monetary policy indicators on banks’ risk weights for credit risk. We present robust evidence of the existence of the risk-taking channel in the Czech Republic. Further, we show that the recent prolonged period of accommodative monetary policy has been instrumental in establishing this relationship. Finally, we obtain comparable results by extending the analysis to cover all the Visegrad Four countries. The presented findings have important implications for the prudential authority, which should be aware of the possible side-effects of monetary policy on how banks measure risk.
JEL codes: E52, E58, G21, G28
Keywords: Banks, financial stability, internal ratings-based approach, risk-taking channel
Issued: December 2017
Download: CNB WP No. 9/2017 (pdf, 455 kB)