Limited liability leads to excessive risk-taking: IMF paper


Banks take on higher amounts of risk as interest rates fall due to their limited liability status, according to an International Monetary Fund paper published on Tuesday.

Fabian Valencia, the paper's author, develops a model to assess how monetary policy affects bank risk-taking. Valencia notes that recent empirical evidence has suggested that banks increase risk-taking when monetary policy rates are low and that this can lead to the adoption of behaviour that leads to excessive risk-taking.


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