The risk-taking channel of monetary policy predicts a negative relationship between interest rates and the risk-taking incentives of bank CEOs. Using a sample of U.S. banks over the period 1992-2006, we provide empirical evidence consistent with this prediction. Our finding holds for both...

We study a loan market equilibrium in which some borrowers are optimistic and banks face imperfect competition. We show that the presence of optimistic borrowers reduces the interest rate paid by safe borrowers and increases the interest rate paid by risky borrowers. But it has no net impact on...

Recent studies document that some CEOs are overconfident. In this note, we examine the effect of CEO overconfidence on bank risk taking. We measure CEO overconfidence using press data, and bank risk taking using the standard deviation of stock returns. Controlling for a number of CEO- and...