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Is there a risk-taking channel of monetary policy in Portugal?
It is well established that when monetary policy is accommodative, banks tend to grant more credit. However, only recently attention was given to the quality of credit granted and, naturally, the risk assumed during those periods. This article makes an empirical contribution to the analysis of the so-called risk-taking channel of monetary policy, by testing whether Portuguese banks grant more risky loans when monetary policy interest rates are lower. Our results show that banks grant more loans to non-financial corporations with recent defaults or without credit history when policy interest rates are lower. Even though these loans turn out to have higher ex-post default probabilities, as expected, the overall loan portfolio does not show an increase in the likelihood of default in the aftermath of a period of lower monetary policy rates. All in all, the evidence on the risk-taking channel in Portugal is not as strong as in other countries where similar methodologies were implemented. The results obtained are generally more supportive of the credit channel hypothesis than of a pure risk-taking channel.