BIS Working Paper No. 268, authored by Claudio Borio and Haibin Zhu, explores the link between capital regulation, risk-taking, and monetary policy, focusing on the transmission mechanism. The paper argues that the risk-taking channel, which connects monetary policy to the perception and pricing of risk by economic agents, has been under-researched. It highlights how changes in the financial system and prudential regulation have increased the importance of this channel, while current macroeconomic models are not well-suited to capture it. The paper also discusses the interaction between the risk-taking channel and liquidity, and how changes in the financial system and prudential regulation may have increased the importance of the risk-taking channel. The paper concludes that the risk-taking channel is an important part of the transmission mechanism, and that further research is needed to better understand its role. The paper also discusses the implications of financial change, accounting, and the distribution of risk, and how these factors can influence the transmission mechanism. The paper emphasizes the importance of understanding how risk is distributed in the economy and how this can affect the response of agents to changes in policy rates. The paper also highlights the importance of accounting practices in shaping the transmission mechanism, and how the shift towards fair value accounting can have implications for the transmission mechanism. The paper concludes that the risk-taking channel is an important part of the transmission mechanism, and that further research is needed to better understand its role.BIS Working Paper No. 268, authored by Claudio Borio and Haibin Zhu, explores the link between capital regulation, risk-taking, and monetary policy, focusing on the transmission mechanism. The paper argues that the risk-taking channel, which connects monetary policy to the perception and pricing of risk by economic agents, has been under-researched. It highlights how changes in the financial system and prudential regulation have increased the importance of this channel, while current macroeconomic models are not well-suited to capture it. The paper also discusses the interaction between the risk-taking channel and liquidity, and how changes in the financial system and prudential regulation may have increased the importance of the risk-taking channel. The paper concludes that the risk-taking channel is an important part of the transmission mechanism, and that further research is needed to better understand its role. The paper also discusses the implications of financial change, accounting, and the distribution of risk, and how these factors can influence the transmission mechanism. The paper emphasizes the importance of understanding how risk is distributed in the economy and how this can affect the response of agents to changes in policy rates. The paper also highlights the importance of accounting practices in shaping the transmission mechanism, and how the shift towards fair value accounting can have implications for the transmission mechanism. The paper concludes that the risk-taking channel is an important part of the transmission mechanism, and that further research is needed to better understand its role.