Bank Risk-Taking, Monetary Policy, and Information Shocks: Evidence from Securities Holdings

Using high-frequency euro-area monetary policy surprises and security-level data on French banks’ bond holdings, we show that pure monetary tightening increases bond holdings without altering portfolio composition, consistent with a quantity adjustment. In contrast, information shocks reduce holdings but induce well-capitalized banks to reallocate toward riskier, higher-yield, shorter-maturity bonds issued by non-bank financial institutions. Overall, monetary policy affects banks’ securities portfolios along two distinct margins: quantity adjustments driven by interest rate changes and capital dependent risk reallocation driven by information.