Low rates can encourage risk-taking – BoE paper

shu-175482461-bank-of-england
The Bank of England

Lower interest rates can encourage banks to take riskier investment bets, according to research published by the Bank of England.

The paper, Interest rates, capital and bank risk-taking, by Jonathan Acosta-Smith, divides the effects of policy into a risk-taking channel and a bankruptcy channel. The former describes the incentives banks face in gaining higher returns by taking greater risks, while the latter expresses the disincentive effect posed by the threat of bankruptcy.

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