tailieunhanh - Book: Bank Risk-Taking, Securitization, Supervision, and Low Interest Rates: Evidence from Lending Standards - Anggela Maddaloni

Third, federal funds borrowed have historically been distinguished from other liabilities of depository institutions because they have been exempt from both reserve requirements and interest rate ceilings. 2 The supply of and demand for federal funds arise in large part as a means of efficiently distributing reserves throughout the banking system. On any given day, individual depository institutions may be either above or below their desired reserve positions. Reserve accounts bear no interest, so banks have an incentive to lend reserves beyond those required plus any desired excess. Banks in need of reserves. | Bank Risk-Taking Securitization Supervision and Low Interest Rates Evidence from Lending Standards A IT T T 1 r Angela Maddaloni and José-Luis Peydró July 2009 Abstract We analyze the root causes of the current crisis Allen 2009 Diamond and Rajan 2009 by studying the determinants of bank lending standards in the Euro Area. We use the answers from the confidential Bank Lending Survey where national central banks request banks quarterly information on their lending standards. We find robust evidence that low short-term interest rates soften standards for both businesses and households and - by exploiting cross-country variation of Taylor-rule implied rates -we find that rates too low for too long soften standards even further. The softening is over and above an improvement of the borrower s collateral risk and outlook thus suggesting higher loan risk-taking by banks. In addition we find that weaker banking supervision standards and higher securitization activity amplify the softening of lending standards due to low short-term rates even when we instrument securitization. Finally low short-term rates have a stronger impact than long-term rates on the softening of standards. These results help shed light on the origins of the current crisis and have important policy implications. The authors are at the European Central Bank Kaiserstrasse 29 D 60311 Frankfurt am Main Germany. Contact information and . We thank Lieven Baert and Francesca Fabbri for excellent research assistance. Any views expressed are only those of the authors and should not be attributed to the European Central Bank or the Eurosystem. One error was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful. We all bear a responsibility for that . The supervisory .

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