The Interrelationship Between Monetary Policy And Bank Risk-taking

As a major measure in the macroeconomic regulatory, monetary policy plays aimportant role in the economic development. However, the Big Crisis in2008causedenormous damage to the economic society, the Federal Reserve’ loose monetary policyis supposed to be the source of the crisis. Therefore, people start to think about therelationship between monetary policy and bank risk-taking, and put forward the theoryof monetary policy take effects on bank risk-taking channel. Based on the fact of oursociety, this paper conducts an empirical analysis on the interrelationship betweenMonetary Policy and Bank Risk-Taking. Although affected less by the crisis because ofthe strict financial control, it matters much under the circumstance of market-orientedreform: making it clear what effects monetary policy will take on bank risk-taking willbenefit the control of risk, at the same time, by studying what effects bank risk-takingwill feedback on monetary policy transmission will do good to the policy making, theintensity of the implement, and the final target of the regulate and control.In the theoretical analysis, this paper concludes in four parts. The first part is aboutthe correlate theoretical analysis of the monetary policy, including the conductionchannel of monetary policy (currency channel and credit channel), the role banks playon the conduction channel, conducting the conclusion that banks is at the core of creditchannel. The second part is about the theory of bank risk-taking, including the conceptof bank risk-taking, the risks banks face and the banks’ risk preference, finding thatbank risk-taking has the feature of objective, initiative and dynamics. In the third part, Imainly conclude the four ways that monetary policy affects bank risk-taking, namelyrisk pricing model effect, profit effect, the feedback effect of centre bank and theinsurance effect. In the last, the paper analyze the effect that bank risk taking plays onbank credit channel, the supply of money and market interest rate, all those show thatbank risk-taking do effect on the monetary policy transmission.In the empirical analysis, establishing the model of dynamic panel,using the GMMdynamic panel estimation method, the paper verifies the effect that monetary policyplays on bank risk-taking and bank risk-taking plays on monetary policy’ conductionchannel. All of these empirical results are basically in line with the previous theoreticalanalysis.The innovation point of this paper is the analysis of bank risk-taking plays effects on monetary policy transmission. Previous studies mainly focus on the issue that whethermonetary policy will affect the bank’ risk-taking, seldom do they carry out the reversestudy. In this paper, I collect the relevant data and use GMM dynamic panel estimationmethod, verifying the interrelationship between monetary policy and bank risk-taking.