Bank's risk measures and monetary policy: Evidence from a large emerging economy

Based on data collected from Brazilian banks, this study aims to understand how monetary policy affects bank's risk measures that can be used as macroprudential financial institutions-based policies. The findings denote that an increase in the monetary policy interest rate implies an adjustment in the banks' strategy for ensuring safety and soundness. On the other hand, when the central bank reduces the interest rate, banks decrease their risk covers (bank's risk measures), becoming less safe. Hence, this scenario should trigger macroprudential supervisor awareness. In brief, the results suggest that the coordination between macroprudential and monetary policies is necessary.