Monetary policy, funding cost and banks’ risk-taking: evidence from the USA

Abstract How much deposits and equity a bank has influences how banks’ lending responds to monetary policy. While the responsiveness for channel been well established, this is not case risk-taking (RTC). We show in value-at-risk RTC model that banks with relatively more non-interest-bearing should respond less policy tightening. This suggests act as “pseudo capital.” In panel of US banks, we find strong evidence support our various risk measures.