contract their balance sheets. These bank responses generate externalities that propagate in the form of macro … macro-financial feedback loops can significantly affect macroeconomic outcomes and bank-specific stress tests results. The … heterogeneity in bank lending responses matters: it determines how each bank fares under adverse conditions and the external effects …

This paper develops a model to assess how monetary policy rates affect bank risk-taking. In the model, a reduction in … bank extracts from borrowers. Under limited liability, this increased profitability affects only upside returns, inducing … the bank to take excessive leverage and hence risk. Excessive risk-taking increases as the interest rate decreases. At a …

With policy rates near the zero bound, the Bank of Japan (BoJ) has introduced a series of unconventional monetary …

rely on external funding, have leveraged non-financial private sectors, and use guarantees on bank liabilities during the … crisis. The better quality of banking supervision and the higher coverage of deposit insurance help, however, alleviate the …