Abstract
How much deposits and equity a bank has influences how a banks’ lending responds to monetary policy. While the responsiveness for the bank lending channel has been well established, this is not the case for the risk-taking channel (RTC). We show in a value-at-risk RTC model that the lending for banks with relatively more equity and non-interest-bearing deposits should respond less to monetary policy tightening. This suggests that non-interest-bearing deposits act as “pseudo capital.” In a panel of US banks, we find strong evidence in support of our model for various risk measures.
Original language | English |
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Pages (from-to) | 1129-1148 |
Number of pages | 20 |
Journal | Empirical Economics |
Volume | 65 |
Issue number | 3 |
DOIs | |
Publication status | Published - Sept 2023 |
Keywords
- Bank lending
- Deposits
- Pseudo capital
- Value-at-risk
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Bürgi, C., & Jiang, B. (2023). Monetary policy, funding cost and banks’ risk-taking: evidence from the USA. Empirical Economics, 65(3), 1129-1148. https://doi.org/10.1007/s00181-023-02384-z