Low interest rates and risk incentives for banks with market power

• 成果类型: Article
• 署名作者: Whited, Toni M.; Wu, Yufeng; Xiao, Kairong
• 署名单位: University of Michigan System; University of Michigan; National Bureau of Economic Research; University of Illinois System; University of Illinois Urbana-Champaign; Columbia University
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2021.04.006
• 发表日期: 2021
• 页码: 155-174
• 关键词: MARKET POWER; Bank risk-taking; Liquidity regulation; Low interest rates

摘要

The interaction between interest rates and banks' market power generates a motive for bank risk-taking. Low interest rates depress bank profits from the deposit market as competition from cash intensifies. Limited liability and the consequent low bank market value move banks closer to the convex region of their payoff function and thus lead to more risk-taking. We estimate a model that embodies this intuition. We find that when interest rates are low, over 10% of new loans exceed the number that would be optimal in a counterfactual world with no risk-taking incentives. (c) 2021 Elsevier B.V. All rights reserved.