Research Question The recent financial crisis has marked the importance of understanding the different types of risk to which the financial sector, and ultimately the real economy, are exposed. In particular, monetary policy might influence financial sector risk through the so called risk-taking channel, i.e. the mechanism by which low levels of the risk-free interest rate induce financial institutions to make riskier investments. We explore the functioning and relevance of this channel using a quantitative macroeconomic model, and assess whether the monetary authority should take its influence on bank asset risk into account when setting the interest rate