Real interest rates, leverage, and bank risk-taking

Dell’Ariccia, Giovanni; Laeven, Luc; Marquez, Robert

doi:10.1016/j.jet.2013.06.002

Cited by 321 publications

(199 citation statements)

References 28 publications

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“…Section 7 concludes. 7 The search for yield would normally drive cross-border bank loans as well (Goldberg, 2009), conditional on global banks' capital structures (Dell'Ariccia et al, 2014, Buch et al, 2014. The post-crisis period, however, was characterized by weak bank balance sheets, global bank deleveraging amid tighter home regulations.…”

Section: Introductionmentioning

confidence: 99%

What slice of the pie? The corporate bond market boom in emerging economies

Ayala

Nedeljković

Saborowski

2017

Journal of Financial Stability

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper studies the determinants of shifts in debt composition among emerging market nonfinancial corporates. We show that the determinants of bond market access in EMs vary with global cyclical conditions and across local and foreign currency markets. We find that the role for institutions and macro fundamentals in creating an enabling environment for markets increased during the post-crisis period for local currency markets. Foreign bank linkages additionally explain why local currency bond markets increasingly substituted for banks in channeling liquidity to EMs. In the case of foreign currency markets, in turn, global cyclical factors accounted for most of the variation. Furthermore, a country's relative sensitivity to global factors appears to vary with the size of its foreign currency bond market rather than local fundamentals. Our results highlight the risk of capital flow reversal in those EMs that benefited from the upturn in the global financial cycle mostly due to the relative size of their bond markets rather than strong fundamentals. Terms of use: Documents inJEL-Codes: F300, G150, G200, G300.

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Section: Introductionmentioning

confidence: 99%

What slice of the pie? The corporate bond market boom in emerging economies

Ayala

Nedeljković

Saborowski

2017

Journal of Financial Stability

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“…16 Dell'Ariccia et al (2014) studies how low real interest rate policies may increase bank leverage and risk-taking.…”

Section: Amidst Ex-ante Uncertainty Public Information Plays An Intementioning

confidence: 99%

Uncertain Booms and Fragility

Lee

2018

SSRN Journal

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I develop a framework of the build-up and outbreak of financial crises in an asymmetric information setting. In equilibrium, two distinct economic states arise endogenously: normal times -periods of modest investment, and booms -periods of expansionary investment. Normal times occur when the intermediary sector realizes moderate investment opportunities. Booms occur when the intermediary sector realizes many investment opportunities, but also occur when it realizes very few opportunities. As a result, investors face greater uncertainty in booms. During a boom, subsequent arrival of negative information about an intermediary asset results in large downward shifts in investors' confidence about the underlying quality of long-term assets. A crisis of confidence ensues. Investors collectively force costly early liquidation of the intermediated assets and move capital to safe assets, in a flight-to-quality episode. Degree Type DissertationDegree Name

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“…Empirical evidence relating monetary loosening and quality deterioration is documented by Ioannidou et al (2015), Altunbas and Marques-Ibanez (2014), Maddaloni (2011), Paligorova andSantos (2012), Dell'Ariccia et al (2016), and Jiménez et al (2014). Dell'Ariccia et al (2014) provide a theoretical argument.…”

Section: Introductionmentioning

confidence: 99%

Watering a Lemon Tree: Heterogeneous Risk Taking and Monetary Policy Transmission

2015

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We build a general equilibrium model with maturity transformation that impedes monetary policy transmission. In equilibrium, productive agents choose higher leverage, exposing themselves to greater liquidity risk, which limits their responsiveness to interest rate changes. A reduction in the interest rate then leads to a deterioration in aggregate investment quality, which blunts the monetary stimulus and decreases liquidation values. This, in turn, reduces loan demand, decreasing the interest rate further and generating a negative spiral. Overall, the allocation of credit is distorted and monetary stimulus can become ineffective even with significant interest rate drops.

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Real interest rates, leverage, and bank risk-taking

Cited by 321 publications

References 28 publications

What slice of the pie? The corporate bond market boom in emerging economies

What slice of the pie? The corporate bond market boom in emerging economies

Uncertain Booms and Fragility

Watering a Lemon Tree: Heterogeneous Risk Taking and Monetary Policy Transmission

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