Using option prices on Federal Open Market Committee (FOMC) announcement days, we measure the impact of monetary policy on bank equity tail risks and link them to loan-level regulatory data. Banks that experience a decline in tail risk lend more to riskier firms and ease loan terms in the three weeks after the FOMC announcement. These effects are concentrated among banks with short-term compensation structures and in competitive credit markets. Our results isolate the impact of bank risk-taking in loan supply from confounding forces such as endogenous credit demand and highlight how institutional frictions mediate the risk-taking channel of monetary policy.

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