TAILIEUCHUNG - Working PaPer SerieS no 1075 / July 2009: Bank riSk anD MoneTary PoliCy

The negative coefficient of risk on leverage, both in market and book values, is in line with standard corporate finance arguments, but also consistent with the regulatory view. In its pure form, in which regulation constitutes the overriding departure from the Modigliani and Miller irrelevance proposition, a regulator could force riskier banks to hold more book equity. In that regard, omitting risk from the standard leverage regression (1) would result in spurious significance of the remaining variables. The results in Table VII show this is not the case. Risk does not drive out the other variables. An F-test on the. | EUROPEAN CENTRAL BANK EUROSYSTEM WORKING PAPER SERIES NO 1075 I JULY 2009 BANK RISK AND MONETARY POLICY by Yener Altunbas Leonardo Gambacorta and David Marques-Ibanez EUROPEAN CENTRAL BANK EUROSYSTEM In 2009 all ECB publications feature a motif taken from the 200 banknote. WORKING PAPER SERIES NO 1075 I JULY 2009 BANK RISK AND MONETARY POLICY 1 by Yener Altunbas 2 Leonardo Gambacorta 3 and David Marques-Ibanez 4 This paper can be downloaded without charge from http or from the Social Science Research Network electronic library at http abstract_id 1433713. Ì The views expressed in this paper are those of the authors and do not necessarily represent those of the European Central Bank. 2 University of Wales Bangor Gwynedd LL57 2DG Wales United Kingdom e-mail 3 Bank for International Settlements Monetary and Economics Department Centralbahnplatz 2 CH-4002 Basel Switzerland. 4 Corresponding author European Central Bank Directorate General Research Kaiserstrasse 29 D-60311 Frankfurt am Main Germany e-mail European Central Bank 2009 Address Kaiserstrasse 29 60311 Frankfurt am Main Germany Postal address Postfach 16 03 19 60066 Frankfurt am Main Germany Telephone 49 69 1344 0 Website http Fax 49 69 1344 6000 All rights reserved Any reproduction publication and reprint in the form of a different publication whether printed or produced electronically in whole or in part is permitted only with the explicit written authorisation of the ECB or the aathorf . The views expressed in this paper do not necessarily reflect those of the European Central Bank. The statement of purpose for the ECB Working Paper Series is availablefrom the ECB website http . eeupubbsscentificcwipsdaat httm index. ISSN 1725-2806 online

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