[Vol.27 No.3] An Empirical Study on Bank Capital Channel and Risk-Taking Channel for Monetary Policy | Economic Analysis(상세) | Research | News & Publications |  Bank of Korea
Central bank: bok | Document type: research_paper | Date: 2021-09-30

[Vol.27 No.3] An Empirical Study on Bank Capital Channel and Risk-Taking Channel for Monetary Policy
Macro Economy
2021.09.30
연구조정실(02-759-5490)
Attachment
01 이상진.pdf
Authour: Sang Jin Lee(Financial  Supervisory  Service)
This study empirically analyzes whether bank capital channel and risk-taking channel for monetary policy work for domestic banks in South Korea by analyzing the impact of the expansionary monetary policy on the rate spread between deposit and loan, capital ratio, and loan amount. For the empirical analysis, the Uhlig(2005)’s sign-restricted SVAR(Structural Vector Auto-Regression) model is used. The empirical results are as follows: the bank's interest rate margin increases, the capital ratio improves, risk-weighted asset ratio increases, and the amount of loans increases in response to expansionary monetary shock. This empirical results confirm that bank capital channel and risk-taking channel work in domestic banks, similar to the previous research results. The implications of this study are as follows. Although the expansionary monetary policy has the effect of improving the bank's financial soundness and profitability in the short term as bank capital channel works, it could negatively affect the soundness of banks by encouraging banks to pursue risk in the long run as risk-taking channel works. It is necessary to note that the capital ratio according to the BIS minimum capital requirement of individual banks may cause an illusion in supervising the soundness of the bank. So, the bank's aggressive lending expansion may lead to an inherent weakness in the event of a crisis. Since the financial authority may have an illusion about the bank’s financial soundness if the low interest rate persists, the authority needs to be actively interested in stress tests and concentration risk management in the pillar 2 of the BIS capital accord. In addition, since system risk may increase, it is necessary to conduct regular stress tests or preemptive monitoring of assets concentration risk.
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