Sectoral credit reallocation: An excessive bank risk-taking explanation |
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| Affiliation: | 1. Prince Sultan University, Riyadh, Saudi Arabia;2. Jacksonville University, 2800 University Blvd N, Jacksonville, FL 32211, USA;1. School of Economics and Management, Huzhou College, 1st Xueshi Road, Wuxing District, Huzhou, Zhejiang Province, PR China;2. International Business School Suzhou, Xi''an Jiaotong-Liverpool University, PR China;1. School of Economics, College of Management Academic Studies, Israel;2. Asper School of Business, University of Manitoba, Canada;3. Southwestern University of Finance and Economics, China;1. Department of Industrial and Management Systems Engineering, Kyung Hee University, Yongin-si, Gyeonggi-do, Republic of Korea;2. Department of Big Data Analytics, Graduate School, Kyung Hee University, Yongin-si, Gyeonggi-do, Republic of Korea;3. Investment Policy Division, National Pension Research Institute, Republic of Korea;4. Carey Business School, Johns Hopkins University, United States of America;1. Academy of Mathematics and Systems Science, Chinese Academy of Science, China;2. School of Business, University of Wollongong, Australia;3. School of Sociology and Political Science, Shanghai University, China;4. School of Public Economics and Administration, Shanghai University of Finance and Economics, China |
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| Abstract: | This paper develops a theoretical model to provide an alternative explanation for the credit to nontradable sector growing faster than credit to tradable sector, after a US expansionary monetary policy, based on an excessive risk-taking channel. This is, a reduced foreign interest rate decreases bank default probability, which in turn diminishes banks’ incentives to take excessive risk. This produces a reallocation of loan supply to nontradable sector since tradable loans are riskier. Using monthly sectoral credit data at the bank level for the Peruvian economy in the 2004–2019 period, we find evidence of the excessive bank risk-taking channel on sectoral credit reallocation. |
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| Keywords: | Nontradable loans Tradable loans Real exchange rate Bank risk-taking Open economy E44 E52 F41 G01 G21 |
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