ECB paper investigates policy effect on bank risk-taking
A working paper, published by the European Central Bank (ECB) on August 14, models the effect of policy on bank risk-taking, finding that conflicting impacts of monetary and macro-prudential policy make it impossible for regulators to set an optimal capital requirement.
Authors Itai Agur and Maria Demertzis design a banking system model whereby a rise in interest rates lowers risk taking by making credit more expensive, but raises risk taking by lowering profitability, which the authors say
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