Accommodative monetary policy may increase bank vulnerabilities and risk-taking incentives.
The article explores how actions taken by the European Central Bank and the Federal Reserve impact how risky banks are perceived to be by the stock market. By analyzing data from 2008 to 2015, the researchers found that when central banks support struggling banks and delay addressing bad loans, it can lead to increased risks in the banking sector. Additionally, keeping interest rates low for a long time can encourage banks to take on more risks.