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The Risk-Taking Channel and Monetary Transmission Mechanism in Colombia

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  • Martha López
  • Fernando Tenjo
  • Héctor Zárate

Abstract

The recent financial crisis has brought to the forefront the need for a better understanding of the transmission mechanisms of monetary policy. The main step forward on this issue has drawn on work aimed at stressing the role of the financial sector in this transmission. Particular emphasis has been placed on how policy actions impact risk perceptions and attitudes of banks and other financial institutions,leading to shifts in the supply of credit. Along these lines, and based on evidence from Colombia,this paper finds a significant link between low interest rates and banks´ risk-taking based on evidence from Colombia. Lower interest rates raise the probability of default on new loans, but reduce that on outstanding loans. Furthermore, this channel of policy transmission depends on some bank, loan and borrower characteristics, as well as on macroeconomic conditions, such as the growth rate of the economy.

Suggested Citation

  • Martha López & Fernando Tenjo & Héctor Zárate, 2011. "The Risk-Taking Channel and Monetary Transmission Mechanism in Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 29(64), pages 211-234, July.
    • Handle: RePEc:col:000107:009446
    DOI: 10.32468/Espe.6406
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    References listed on IDEAS

    as
    1. Yener Altunbas & Leonardo Gambacorta & David Marques-Ibanez, 2010. "Does monetary policy affect bank risk-taking?," BIS Working Papers 298, Bank for International Settlements.
    2. Altunbas, Yener & Gambacorta, Leonardo & Marques-Ibanez, David, 2010. "Bank risk and monetary policy," Journal of Financial Stability, Elsevier, vol. 6(3), pages 121-129, September.
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    Citations

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    Cited by:

    1. Wang, Li & Menkhoff, Lukas & Schröder, Michael & Xu, Xian, 2019. "Politicians’ promotion incentives and bank risk exposure in China," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 63-94.
    2. Gabriel Jiménez & Steven Ongena & José‐Luis Peydró & Jesús Saurina, 2014. "Hazardous Times for Monetary Policy: What Do Twenty‐Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk‐Taking?," Econometrica, Econometric Society, vol. 82(2), pages 463-505, March.
    3. Claudio Borio, 2011. "Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges, and a Way Forward," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 87-117, December.
    4. Steven Ongena & Günseli Tümer–Alkan & Natalja von Westernhagen, 2018. "Do Exposures to Sagging Real Estate, Subprime, or Conduits Abroad Lead to Contraction and Flight to Quality in Bank Lending at Home?," Review of Finance, European Finance Association, vol. 22(4), pages 1335-1373.
    5. Leonardo Gambacorta, 2011. "The Risks of Low Interest Rates," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 29(64), pages 14-31, July.
    6. Rimsha Shahid & Rimsha Shahid & Hammad Badar & Aqsa Iftikhar & Sidra Ghulam Muhammad & Dr. Muhammad Navid Iqbal & Zulfiqar Hussain Awan & Faisal Nadeem Shah, 2024. "Influence on Banks' Credit Risk Through Monetary Policy Instruments: A Study of Listed Commercial Banks in Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(2), pages 255-265.
    7. Raslan Alzubi & Mustafa Caglayan & Kostas Mouratidis, 2017. "The Risk-Taking Channel in the US: A GVAR Approach," Working Papers 2017009, The University of Sheffield, Department of Economics.
    8. Brana, Sophie & Campmas, Alexandra & Lapteacru, Ion, 2019. "(Un)Conventional monetary policy and bank risk-taking: A nonlinear relationship," Economic Modelling, Elsevier, vol. 81(C), pages 576-593.
    9. Martha López & Fernando Tenjo & Héctor Zárate, 2012. "The Risk-taking Channel in Colombia Revisited," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 30(68), pages 276-295, June.
    10. policy, Work stream on macroprudential & Policy, Monetary & Stability, Financial & Albertazzi, Ugo & Martin, Alberto & Assouan, Emmanuelle & Tristani, Oreste & Galati, Gabriele & Vlassopoulos, Thomas , 2023. "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area," Occasional Paper Series 272, European Central Bank.
    11. Ekin Ayse Ozsuca & Elif Akbostanci, 2012. "An Empirical Analysis of the Risk Taking Channel of Monetary Policy in Turkey," ERC Working Papers 1208, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.
    12. Raslan Alzuabi & Mustafa Caglayan & Kostas Mouratidis, 2021. "The risk‐taking channel in the United States: A GVAR approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5826-5849, October.

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    More about this item

    Keywords

    monetary policy; lending standards; risk-taking; duration analysis; accelerated failure time models.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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