The Risk-Taking Channel and Monetary Transmission Mechanisms in Indonesia

Pristanto Silalahi, Telisa Aulia Falianty


This study aims to analyze monetary and macroprudential policies through risk taking banks in Indonesia. The importance of risk-taking channel analysis in the transmission mechanism of monetary policy is that it is a newer route and is different from the bank lending channel that has been previously proposed in monetary policy theory. This risk-taking channel affects the supply of credit by banks through the bank's decision to channel credit based on changes in bank behavior in dealing with bank risk. The study also recognizes the impact of monetary and macroprudential policies and the role of the characteristics of banks, as well as macroeconomic conditions such as economic growth and inflation rates. The analytical method used is fixed effects through panel data in the period 2012-2019. This study uses 3 types of proxies to measure risk, first with the Z-score measurement method, second with the ratio of the number of risky assets to total assets and third, the ratio of the number of bad loans to total assets. The results of this study found that the impact of monetary policy and macroprudential policy significantly affects bank risk. In addition to the main variables, this study also uses GDP growth and inflation variables as control variables for macroeconomic conditions that significantly effect on bank risk, liquidity, and bank size variables as control of bank characteristics which also significantly affect bank risk. So, it can be concluded that the risk-taking channel exists in Indonesia’s banking.


monetary policy: macroprudential policy; risk-taking

Full Text:



Agung, J. (2010). Integrating monetary and macroprudential policies: towards a new paradigm of monetary policy in Indonesia after the global crisis. Bank Indonesia, 181-214.

Angeloni, I., Faia, E., & Duca, ML (2014). Monetary policy and risk-taking. Journal of Economic Dynamics and Control, 52, 285-307.

Antipa, P., Mengus, E., & Mojon, B. (2010). Would Macro-prudential Policies Have Prevented the Great Recession?. Banque de France, mimeo.

Adrian, T., & Shin, HS (2009). Prices and Quantities in the Monetary Policy. International Journal of Central Banking, 5(4).

Agur, I., & Demertzis, M. (2015). Bank Risk Taking, Regulation and the Impact of Monetary Policy (No. 271). Working Papers.

Altunbas, Y., Gambacorta, L., & Marqués-Ibanez, D. (2009). An empirical assessment of the risk-taking channel. Available at SSRN 1459627.

Altunbas, Y., Manganelli, S., & Marques-Ibanez, D. (2017). Realized bank risk during the great recession. Journal of Financial Intermediation, 32, 29-44.

Andries, AM, Cocri, V., & Pleşcău, I. (2015). Low-interest rates and bank risk-taking: Has the crisis changed anything? Evidence from the Eurozone. Review of Economic and Business Studies, 8(1), 125-148.

Ariefianto, MD, & Soepomo, S. (2013). Risk Taking Behavior of Indonesian Banks: Analysis on the Impact of Deposit Insurance Cooperation establishment. Bulletin of Monetary Economics and Banking, 15(3), 3-25.

Backus, D., & Kehoe, P. (1992). International Evidence on the Historical Properties of Business Cycles. American Economics, 864-888.

Barrel, R & Karim, D (2013) what should we do about (macro) prudential? MacroPrudential Policy and credit. London: Brunel University.

Bernanke, BS (1988). Credit, Money, and Aggregate Demand. The American Economic Review Vol 78 no2.

Bernanke, BS (1995). Inside the Black Box: The Credit Channel of Monetary Transmission Mechanism. Journal of Economic Perspectives, Vol 9 No.4.

Borio, C. (2003). Towards a macroprudential framework for financial supervision and regulation. BIS Working Papers, 128.

Borio, C., & Zhu, H. (2008). Capital regulation, risk-taking, and monetary policy: a missing link in the transmission mechanism? J. Finance. steady. 8, 236–251.

Bouzgarrou, H., Jouida, S., & Louhichi, W. (2018). Bank profitability during and before the financial crisis: Domestic versus foreign banks. Research in International Business and Finance, 44, 26-39.

Campos, MF (2019). The effectiveness of macroprudential policies and SBI interest rates on bank credit risk in Indonesia. MBR (Management and Business Review), 3 (1), 23-32.

Cerutti, E., Claessens, S., & Laeven, L. (2017). The use and effectiveness of macroprudential policies: New evidence. Journal of Financial Stability, 28, 203-224.

Collard, F., Dellas, H., Diba, B., & Loisel, O. (2017). Optimal monetary and prudential policies. American Economic Journal: Macroeconomics, 9(1), 40-87.

Cordella, T., Federico, P., Vegh, C., & Vuletin, G. (2014). Reserve Requirements in the Brave New Macroprudential World. World Bank Policy Research Working Paper 6793.

Delis, MD, & Kouretas, GP (2011). Interest rates and bank risk-taking. Journal of Banking & Finance, 35(4), 840-855.

Dell'Ariccia, G., Laeven, L., & Suarez, G. (2016). Bank Leverage and Monetary Policy's Risk-Taking Channel: Evidence from the United States. The Journal of Finance, 72(2), 613–654

Demirgüç-Kunt, A., & Huizinga, H. (2010). Bank activity and funding strategies: the impact on risk and returns. J. Finance. econ. 98,, 626–650.

De Paoli, Bianca, and Matthias Paustian. (2013). “Coordinating Monetary and Macroprudential Policies.” Federal Reserve Bank of New York Staff Report No. 653

Ekananda, M. (2015). Basic Econometrics for Research in Economics, Social and Business. Jakarta: Media Discourse Partners.

Ekananda, M. (2016). Panel Data Econometric Analysis. Jakarta: Media Discourse Partners.

Ekananda, M. (2016). Time Series Econometric Analysis. Jakarta: Media Discourse Partners.

Federico, P., Vegh, C., & Vuletin, G. (2014). Reserve Requirements Policy Over the Business Cycle. NBER Working Paper No. 20612.

Gambacorta, L. (2009). Monetary policy and the risk-taking channel. BIS Quarterly Review December.

Gambacorta, L., & Murcia, A. (2017). The impact of macroprudential policies and their interaction with monetary policy: an empirical analysis using credit registry data.

Goodhart, C., & Schoenmaker, D. (1995). Should the functions of monetary policy and banking supervision be separated?. oxford Economic papers, 539-560.

Gultom, Miranda. S, Solikin M. Juhro and Firman Mochtar. (2009). Indonesian Monetary Policy Transmission Mechanisms and the Role of Risk Perception, Research Notes, Bank Indonesia, March

Hahm, JH, Mishkin, FS, Shin, HS, & Shin, K. (2012). Macroprudential policies in open emerging economies (No. w17780). National Bureau of Economic Research.

Jonsson, M., & Moran, K. (2014). The linkages between monetary and macroprudential policies. Sveriges Riksbank Economic Review , 1 (2014), 1-21.

Köhler, M. (2012). Which banks are riskier? The impact of loan growth and business model on bank risk-taking.

Kuttner, K and I Shim (2012): “Taming the real estate beast”, mimeo.

Laeven, L., & Levine, R. (2009). Bank governance, regulation, and risk-taking. J. Finance. econ. 93, 259–275.

Lapteacru, I. (2016). On the consistency of the Z-score to measure the bank Risk. LAREFI Working Paper N°2016-05.

Meeker, LG, & Gray, L. (1987). A note on non-performing loans as an indicator of asset quality. Journal of banking & finance, 11 (1), 161-168.

Maddaloni, A., & Peydro, JL (2018). Monetary policy, macroprudential policy, and banking stability: evidence from the euro area. International Journal of Central Banking.

Martin, A., Mendicino, C., & Van der Ghote, A. (2021). On the interaction between monetary and macroprudential policies.

Minghua, C.d. (2017). Monetary policy and bank risk-taking: Evidence from emerging. Emerging Markets Review, 116-140.

Mishkin, F. (2001). The Transmission Mechanism and the Role of Asset Prices in Monetary Policy. Working Paper, No. 8617.

Nuryana, I. (2017). Assessment of the effectiveness of macroprudential instruments in reducing bank credit risk in Indonesia (Study on Go Public Banking Period 2012-2015). Reference: Journal of Management Science and Accounting, 5 (1), 55-68.

Rajan, R. (2006). Has finance made the world riskier? European Financial Management, 499– 533.

Se, OH (2013). Loan-to-value as a macro-prudential policy tool: Experiences and lessons of Asian emerging countries. DsF policy paper, 33.

Shen, Chung-Hua (2009). Bank Liquidity Risk and Performance. Journal of Banking and Finance, Vol. 29, 1153-1184

Satria, J., & Juhro, SM (2011). RISK BEHAVIOR IN THE TRANSMISSION MECHANISM. Bulletin of Monetary, Economics and Banking, 251-150.

Swaningrum, A., & Hariwan, P. (2014). Evaluation of the Effectiveness of Macroprudential Instruments in Reducing Systemic Risk in Indonesia. Bandung: Satya Wacana Christian University.

Vinals, J. (2011). Macroprudential policy: an organizing framework. IMF papers.

Warjiyo, P. (2006). Banking system stability and monetary policy: linkages and developments in Indonesia. Bulletin of Monetary Economics and Banking, 8 (4), 429-454.

Warjiyo, P. (2014). Monetary Policy Transmission Mechanism in Indonesia. Jakarta: BI Institute

Wimboh. (2004). Effect of IIR, LDR, and CAR on NPL at PT. Bank Mandiri (Persero).Thesis



ISSN (Print) 2086-1575       ISSN (Online) 2502-7115

View My Stats


Creative Commons License
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.