Author : Andrea Winkelmann
Release : 2013
Genre :
Kind : eBook
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Book Synopsis Monetary Policy and Bank Off-Balance Sheet Activities by : Andrea Winkelmann
Download or read book Monetary Policy and Bank Off-Balance Sheet Activities written by Andrea Winkelmann. This book was released on 2013. Available in PDF, EPUB and Kindle. Book excerpt: This thesis addresses the question whether accommodative monetary policy pursued by the Federal Reserve Bank (Fed) in the run-up to the recent financial crisis predicts a significant increase in risk-taking of US commercial banks. In contrast to other studies, we consider banks' off-balance sheet (OBS) activities as a proxy for overall risk-taking. Using annual data of US commercial banks from 1998 until 2012 and controlling other variables, we could not support our hypothesis that accommodative monetary policy is associated with increased OBS activity. However, our specific approximation of OBS activity which follows an indirect approach based on the literature of Boyd and Gertler (1995) may be an incomplete measurement for risk-taking. Moreover, we found evidence that the recent financial crisis was to some extent unexpected. If banks are generally not aware of taking chances, the level of OBS activity may not be an appropriate indicator for risk-taking. This work should consequently be considered as a first step towards quantifying the direct effect of monetary policy on OBS activity. As our results reveal, further research should be conducted in order to gain a better understanding on the mechanisms through which monetary policy affects banks' OBS activities. Our recommendation is to reform supervision and regulatory policy in order to ensure a better disclosure and monitoring of risk in general and of OBS activity in particular.
