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R. Nijskens and W. Wagner, “Credit Risk Transfer Activities and Systemic Risk: How Banks Became Less Risky Individually but Posed Greater Risks to Financial System at the Same Time,” Journal of Banking and Finance, Vol. 35, No. 6, 2011, pp. 1391-1398. doi:10.1016/j.jbankfin.2010.10.001

has been cited by the following article:

• TITLE: Banking Sector and Monetary Policy Transmission: Bank Capital, Credit and Risk-Taking Channels

  AUTHORS: Philippe Gilles, Marie-Sophie Gauvin, Nicolas Huchet

  KEYWORDS: Banking Sector; Credit Channels; Monetary Policy; Prudential Policy

  JOURNAL NAME: Modern Economy, Vol.4 No.1, January 31, 2013

  ABSTRACT: In the literature, the question of central banks’ responsibility for triggering crises is raised when sustainable low interest rates lead to excessive banks’ risk exposures. However, such portfolio choices mainly depend on the various returns of assets and on the official interest rate, taking into account that the bank lending channel is affected by the bank capital channel. On the basis of a simple theoretical model including a solvency ratio, we show that during recessions a credit rationing is observed together with a flight to quality; during expansions monetary policy can induce both a fall in credit activity and an increase in financial instability. Then, regulatory capital arbitrages appear and still weaken productive loans. Conclusions can be drawn in terms of prudential policy, as the central bank may be powerless face to banking strategies if the regulatory framework is procyclical.