Competition, Bonuses, and Risk-Taking in the Banking Industry

2011 ◽  
Author(s):  
Christina E. Bannier ◽  
Eberhard Feess ◽  
Natalie Packham
Keyword(s):  
Risk Taking ◽  
Banking Industry

scholarly journals Do Professional Norms in the Banking Industry Favor Risk-taking?

2017 ◽  
Vol 30 (11) ◽  
pp. 3801-3823 ◽  
Author(s):  
Alain Cohn ◽  
Ernst Fehr ◽  
Michel André Maréchal
Keyword(s):  
Risk Taking ◽  
Banking Industry ◽  
Professional Norms

Risk-taking behaviour and ownership in the banking industry: The Spanish evidence

2008 ◽  
Vol 60 (4) ◽  
pp. 332-354 ◽  
Author(s):  
Teresa García-Marco ◽  
M. Dolores Robles-Fernández
Keyword(s):  
Risk Taking ◽  
Banking Industry

Competition, Bonuses, and Risk-taking in the Banking Industry*

2012 ◽  
Vol 17 (2) ◽  
pp. 653-690 ◽  
Author(s):  
Christina E. Bannier ◽  
Eberhard Feess ◽  
Natalie Packham
Keyword(s):  
Risk Taking ◽  
Banking Industry

scholarly journals Does the agency problem exist in Korean banking industry?

2009 ◽  
Vol 6 (4) ◽  
pp. 551-555
Author(s):  
Seok Weon Lee
Keyword(s):  
Panel Data ◽  
Cash Flow ◽  
Risk Taking ◽  
Banking Industry ◽  
Agency Problem ◽  
Market Discipline ◽  
Financial Industry ◽  
Government Regulations ◽  
Banking Regulations ◽  
Bank Managers

In this paper, we empirically examine whether the agency problem exists in Korean banking industry. Banking industry may be a very special type of industry where government regulations are prevailing and market discipline may function less effectively than in other industries. Investors and even bankers themselves may believe that regulators will not let them fail because it can cause much bigger damage to the economy especially when banking regulations are very loose. Therefore investors would not have great incentives to monitor the behavior of banks, and bank managers could pursue riskier strategies than the firms in other industries do without worrying about the possible loss of their jobs due to the bad performance and reputation of their management. But when regulations are very tight bank managers would realize that closing down and bankruptcy of the bank is not hard to occur, and therefore, they would act in a more conservative and risk aversive manner, which is the case where the agency problem arises. From the analysis of the panel data, we find consistent evidences that the agency problem does not appear to exist in Korean banking industry before 1998 period, when regulations are very loose, which is consistent with our presumption. We find positive associations between the level of outside share ownership and risk-taking for the period of pre-1998. But this association becomes weaker for the post-regulation period 1998-2005. As the regulations become tighter, agency problem becomes bigger which will be the loss, anyway, of firm‟s cash flow, while the regulations may have some effectiveness in bringing more safety of the industry. Thus, regulators and the firms in financial industry need to develop better systems to minimize the costs associated with agency problem when making regulatory reforms.

scholarly journals FDICIA and Risk Shifting 1n the Banking Industry

2006 ◽  
Vol 7 (1) ◽  
pp. 87-116
Author(s):  
Seok-Weon Lee
Keyword(s):  
Moral Hazard ◽  
Risk Taking ◽  
Deposit Insurance ◽  
Banking Industry ◽  
Systematic Risk ◽  
Full Sample ◽  
Risk Taking Behavior ◽  
Federal Deposit Insurance ◽  
Asset Size ◽  
The U.S

This is an empirical study that examines how the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 in the U.S. banking industry affects the moral hazard risk-taking incentives of banks. We find that FDICIA appears to be effective in significantly reducing the systematic risk-taking incentives of the banks. Considering that the banks' asset portfolios are necessarily largely systematic risk-related, the significant decrease in their systematic risk-taking incentives provides some evidence of the effectiveness of FDICIA. However, with respect to the nonsystematic risk-taking behavior, the results generally indicate statistically insignificant decreases in the risk-taking incentives after FDICIA. To well-diversified investors who can diversify nonsystematic risk away, nonsystematic risk may not be a risk any more. However, to maintain a sound banking environment and to reduce the risk to individual banks, this result implies that regulatory agents should monitor the banks’ nonsystematic risk-taking behavior more closely, as long as it is positively related to the banks’ failures. We further test the change in the risk-taking incentives by partitioning the full sample into two groups: Banks with higher moral hazard incentives as those with larger asset size and lower capital ratio and banks with lower moral hazard incentives as those with smaller asset size and higher capital ratio. The main result for this test is that, with FDICIA, the decrease in the risk-taking incentives of the banks with higher moral hazard incentives (larger asset-size and lower capital-ratio banks) is less than that of the banks with lower moral hazard incentives (smaller asset-size and higher capital-ratio banks), with respect to both systematic and nonsystematic risk-taking measures. Furthermore, the change in the nonsystematic risk-taking incentives of the banks with higher moral hazard incentives is rather mixed, while their systematic incentives are decreased. These findings imply that the regulatory agents should allocate more time and effort toward monitoring the banks with higher moral hazard incentives with particular emphasis on their nonsystematic risk-taking behavior.

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