Measuring bank risk-taking behaviour - The risk-taking channel of Monetary Policy in Malaysia

IFC Working Papers No 16
November 2016


Using a proprietary micro-dataset on loan defaults in Malaysia, we introduce a simple fixed effects model to extract a measure of bank lending standards from the observed default rates of loan portfolios. We then use this measure to investigate the risk-taking channel of monetary policy in a panel fixed-effects regression. We find limited evidence of the risk-taking channel of monetary policy in Malaysia. This could in part be a reflection of the effects of a pre-emptive monetary policy stance and the implementation of policies from a broader toolkit in leaning against financial imbalances in Malaysia.