Monetary conditions and banks' behaviour in the Czech Republic

This paper examines the impact of monetary conditions on the risk-taking behaviour of banks in the Czech Republic by analysing the comprehensive credit register of the Czech National Bank. Our duration ana- lysis indicates that expansionary monetary conditions promote risk-taking among banks. At the same time, a lower interest rate during the life of a loan reduces its riskiness. While seeking to assess the association between banks' appetite for risk and the short-term interest rate we answer a set of questions related to the dierence between higher liquidity versus credit risk and the eect of the policy rate conditioned on bank and borrower characteristics