67. Risk behaviour of banks

The third article in the Bank of Canada review looks at bank behaviour when returns are low. It concludes that banks, in search of return, take on riskier activities, reducing requirements for risky borrowers. This is called the risk-taking channel of monetary policy. It works like this: as the central bank lowers interest rates to stimulate borrowing and investment,  banks take on riskier projects, making it easier to get credit and strengthening the effect of the policy.