due to bank funding shortages from the sovereign debt crisis were a major factor behind the lending slowdown in late 2011 …

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 …