1. The risk-taking channel of monetary policy: exploring all avenues Discussion, MPC TF Research Workshop, 2 February 2018
Jan Willem van den End

2. Contribution Panel regressions, covering multiple dimensions…
individual bank, borrower & loans characteristics
ex-ante & ex-post credit quality (at origination & over time)
intensive & extensive margin (existing & new loans)
… strengthen identification and nuance outcomes
risk-taking only found at extensive margin
most obvious for banks with low capital, high liquidity buffers

3. Sample period
Sample period because “mon pol in this period was exogenous to PT economy” and was a “normal period”
entering EMU was shift from one equilibrium to another (not a normal period)
financial conditions driven by sovereign risk spread (which is not exogenous to PT economy)
different post-crisis state (ZLB, UMP, Basel 3, 3.5)
has affected bank behaviour
calls for caution wrt policy conclusions

4. Misallocation
Risk-taking should be put in wider context that led to misallocation of resources
capital flows, falling interest rates & risk spreads, fading FX risk, asset price boom  affected bank behaviour
Cette et al. (EER, 2016), Gopinath et al. (QJE, 2017)
so its not only risk-taking by domestic banks, but a shift to another equilibrium, giving rise to misallocation

5. Misallocation through bank lending
Suggestion: identify evergreening by looking at loans performing with forbearance
Source: Andrews & Petroulakis (2017)

6. Liquidity buffers
Finding that banks with high liquidity buffers more likely engage in risk-taking not in line with intuition
liquidity buffers raise loan rates and lower lending (BCBS/MAG, 2010)
Finding perhaps due for environment with strong search for yield, but cannot be generalized

7. Dif-in-dif
Do loans granted when policy rates are low more likely default when rates increase?  dif-in-dif
Issue: comparability of treated & control group of loans
doubtful whether very short window solves it
likely that banks take into account changing rate expectations in lending behaviour, e.g. in non-price conditions
selection bias in loans granted in the two periods
suggestion: propensity score matching