Nexus of Bank Risk-taking and Interest Rates



Year of publication 2016
Type Article in Proceedings
Conference Proceedings of the 13th International Scientific conference European Financial Systems 2016
MU Faculty or unit

Faculty of Economics and Administration

Web European Financial systems
Field Economy
Keywords interest rate; risk taking; banking industry; non-performing loan; profitability
Description Many researches proved that the gradual decrease of interest rates from the early 2000s to the present caused the increase of the risk-taking appetite of banks. This theory suggests that a low interest environment drives, ceteris paribus, bank margins and informational asymmetries down. As a consequence, banks react by softening their lending standards, thus raising the level of risk assets in their portfolios and increasing the risk of failure. This paper analyses impact of low interest rates to bank risk-taking in the Czech banking sector and answers following questions. Do low interest rates increase risk-taking appetite of banks in the Czech Republic? How the Czech banking sector faces to low interest rates in connection with profitability?
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