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Monetary Policy's Risk-Taking Channel in Consideration of Bank's Profit and Asset Structure: Evidence from Korea (in Korean)

Author

Listed:
  • Uijin Kim

    (Economic Research Institute, Bank of Korea)

  • Hosung Jung

    (Economic Research Institute, Bank of Korea)

Abstract
This paper explores the effect of an interest rate change on the risk-taking of a bank in consideration of its profit and asset structure. The risk-taking is proxied by the risk weight of a bank, derived from its BIS capital ratio. We show that in Korea, an interest rate increase (decrease) make a bank bear less (more) risk. The risk-taking of a bank more profitable is less sensitive to an interest rate change. In addition, the asset structure, such as ratio of loan to total asset and ratio of short-term asset to total asset, of a bank adopting internal ratings based approach for its asset risk assessment, has more impact on bank¡¯s risk-taking than one with standardized approach. This paper is the first attempt to use the risk weight of a bank under capital regulation to analyze the relation between an interest rate change and bank¡¯s risk-taking. It thus contributes to the literature by the use of direct measure for risk-taking of a bank and by showing the interaction between monetary policy and macroprudential policy.

Suggested Citation

  • Uijin Kim & Hosung Jung, 2019. "Monetary Policy's Risk-Taking Channel in Consideration of Bank's Profit and Asset Structure: Evidence from Korea (in Korean)," Working Papers 2019-7, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1907
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    File URL: http://www.bok.or.kr/ucms/cmmn/file/fileDown.do?menuNo=500788&atchFileId=FILE_000000000008898&fileSn=1
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    More about this item

    Keywords

    Monetary Policy; Risk-Taking; Interest Rates; Bank¡¯s Profit and Asset Structure;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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