Such deposit betas underpin the asset and liability management choices of banks and commitment to investors, and thus a stronger pass-through may translate into increased perceived banking sector risk and a further reduction in credit supply. The strength of the risk-taking channel is underpinned by the higher risk perceptions around the macroeconomic outlook and the lower risk tolerance of individual banks.
Increasing concerns about the credit worthiness of individual borrowers may test the ability of banks to meet capital targets, inducing a retrenchment from private sector credit. According to the BLS, risk perceptions continue to be an important driver of the tightening in credit standards.