Publication detail

The effect of accommodative monetary policy on the risk weights applied by domestic banks

Author(s): Mgr. Václav Brož ,
Mgr. Dominika Ehrenbergerová (Kolcunová) ,
PhDr. Simona Malovaná Ph.D.,
Type: Chapter in book
Year: 2018
Number: 0
ISSN / ISBN: 978-80-87225-80-6
Published in: CNB Financial Stability Report 2017/2018
Publishing place: Prague
Keywords:
JEL codes:
Suggested Citation:
Abstract: This article examines the effect of accommodative monetary policy on risk perception and risk measurement by domestic banks that use internal models to estimate the risk parameters entering the calculation of their capital requirements. Low interest rates can influence risk parameter estimates either directly or indirectly through their impact on asset prices, asset price volatility, valuation, firms’ cash flow and so on. They can also affect the perceived riskiness of existing borrowers and new loan applicants, thereby further reducing risk parameter estimates. The results of our empirical analysis point to the existence of a risk-taking channel for banks that use the IRB approach for at least a portion of their exposures, as we find a positive, statistically significant relationship between the implicit risk weights of those banks and a number of monetary policy variables.

Partners

Deloitte

Sponsors

CRIF
McKinsey
Patria Finance