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THE INTERPLAY BETWEEN QUANTITATIVE EASING AND RISK:

THE CASE OF THE JAPANESE BANKING.

 

 

Emmanuel C. Mamatzakis

University of Sussex

 

Anh N. Vu

University of Sussex

 

Abstract

The Japanese banking industry is an interesting one, given chronic problems related to notorious non-performing loans, originated back in the 1990s, but also due to an unprecedented monetary expansion. In this paper, we focus on the impact of quantitative easing on bank level risk, while controlling for bank competition. We opt for a measure of bank specific risk-taking based on a new data set of bankrupt and restructured loans. Given issues related to endogeneity among the main variables, we adopt dynamic panel threshold and panel vector autoregression analyses that address such criticism. Results demonstrate that quantitative easing reduces bankrupt and restructured loan ratios, though we do not observe a similar impact on bank stability. Given the adoption of negative rates in January 2016 by the Bank of Japan, our study comes is timely and provides insightful implications for future research.

 

JEL-classifications: G21, C23, E52

Keywords: Quantitative easing; bank risk-taking; Japan.

Acknowledgements: This study was conducted under the Bank of Greece’s programme of cooperation with universities. The authors are grateful to Heather Gibson for valuable comments and all participants at the research seminar of Bank of Greece. We also thank G. Tavlas, D. Malliaropulos, A. Tagkalakis, G. Hondroyiannis, Thomas Weyman-Jones, Roman Matousek, Manthos Delis, and Efthymios G. Tsionas. Any remaining errors are our own.

 

 

 

Correspondence:

Emmanuel Mamatzakis

University of Sussex

Sussex House, Falmer
Brighton, BN1 9RH
United Kingdom

Tel: +44 (0) 1273 877286

Email address: e.mamatzakis@sussex.ac.uk; emamatzakis@bankofgreece.gr

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