Hazardous times for monetary policy: What do twenty-three million bank loans say about the effects of monetary policy on credit risk-taking?

We identify the impact of short-term interest rates on credit risk-taking by analyzing a comprehensive credit register from Spain, a country where for the last twenty years monetary policy was mostly decided abroad. Discrete choice, within borrower comparison and duration analyses show that lower overnight rates prior to loan origination lead banks to lend more to borrowers with a worse credit history and to grant more loans with a higher per period probability of default. Lower overnight rates during the life of the loan reduce this probability. Bank, borrower and market characteristics determine the impact of overnight rates on credit risk-taking.