Properly designed and calibrated macro-prudential policies may help to avoid these situations and may thus support the repair of the monetary transmission mechanism. Furthermore, there is growing evidence that monetary policy itself may contribute to the fluctuation of risk aversion and risk taking in the banking system over time.
Concretely, banks can react to the actual stance of monetary policy by changing the composition and the risk profile of their portfolio (“risk-taking channel” of monetary policy). This is another example of how macro-prudential policies can contribute to the effective conduct of monetary policy by addressing cyclical swings in risk taking in a timely manner.