What does peer-to-peer lending evidence say about the risk-taking channel of monetary policy?

Yiping Huang, Xiang Li, Chu Wang

This paper uses loan application-level data from a Chinese peer-to-peer lending platform to study the risk-taking channel of monetary policy. By employing a direct ex-ante measure of risk-taking and estimating the simultaneous equations of loan approval and loan amount, we are the first to provide quantitative evidence of the impact of monetary policy on the risk-taking of nonbank financial institution. We find that the search-for-yield is the main workhorse of the risk-taking effect, while we do not observe consistent findings of risk-shifting from the liquidity change. Monetary policy easing is associated with a higher probability of granting loans to risky borrowers and a greater riskiness of credit allocation, but these changes do not necessarily relate to a larger loan amount on average.

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Year of publication:	24. Juni 2019
Authors:	Huang, Yiping ; Li, Xiang
Publisher:	Halle (Saale), Germany : Halle Institute for Economic Research (IWH) - Member of the Leibniz Association
Subject:	monetary policy \| risk-taking \| non-bank financial institution \| search-for-yield \| risk-shifting \| Geldpolitik \| Monetary policy \| Bankrisiko \| Bank risk \| Geldpolitische Transmission \| Monetary transmission \| Kreditgeschäft \| Bank lending \| Risikopräferenz \| Risk attitude \| Kreditmarkt \| Credit market \| Kreditrisiko \| Credit risk