Abstract
Monetary policy has been shown to influence the risk-taking behaviour of banks in Europe and North America. Africa has however received limited attention in this regard. This study contributes to the monetary policy and bank risk-taking literature for sub-Sahara Africa by examining a panel of commercial banks from 2001-2015 for different types of risks. We find that monetary policy significantly influences bank risk-taking both statistically and economically, but the effect differs across the types of risks. Bank size and profitability are important in determining how effective monetary policy impacts risk-taking. The effects are stronger for countries without exchange rate controls. In terms of policies, monetary authorities intending to pursue expansionary monetary policy must remedy the risk-taking response by banks.
Highlights
The discussion about the risk-taking channel of monetary policy can be traced to the 2008 global financial crisis
We find that the relationship between monetary policy and credit risk-taking is positive and significant
This paper contributes to the bank risk-taking literature by providing evidence of a relationship between monetary policy and risk-taking in developing countries
Summary
The discussion about the risk-taking channel of monetary policy can be traced to the 2008 global financial crisis. The central argument here is that when interest rates are very low banks will lean towards higher risk-taking and cause a shift in credit supply; that is, the risk-taking channel implies an increase in the riskiness of lending via low-quality portfolios In this way, monetary policy can contribute to financial instability via a build-up of imbalances in the financial system. Our focus in this study is to empirically determine the relationship between monetary policy and risk-taking of banks operating in 37 countries in sub-Sahara Africa, using data from 2001 to 2015 and for different types of risk.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
