What Explains European Banks Risk-Taking? A Simultaneous Equations Approach

2017 ◽  
Author(s):  
Catarina Fernandes ◽  
Jorge Farinha ◽  
Francisco Vitorino Martins ◽  
Cesario Mateus
Keyword(s):  
Risk Taking ◽  
Simultaneous Equations ◽  
European Banks

The impact of bank liquidity risk on risk-taking and bank lending: evidence from European bank

2021 ◽  
Vol 6 (2) ◽  
pp. 82-97
Author(s):  
Hongyan Liang ◽  
Zilong Liu
Keyword(s):  
Growth Rate ◽  
Risk Taking ◽  
Fixed Effects ◽  
Liquidity Risk ◽  
Bank Lending ◽  
Basel Iii ◽  
European Banks ◽  
Risk Taking Behavior ◽  
Loan Growth ◽  
The Impact

Objective – This paper uses a sample of annual observations of European banks to examine whether the liquidity risk affects a bank’s risk-taking behavior and its future loan growth. Methodology – A sample of European banks (27 member countries of the European Union plus U.K.) over the period of 2005 to 2019 are used in this study. Liquidity risk is measured by the ratio of liquid assets to total assets. Given the longitudinal nature of the data, the authors use panel regression with bank fixed effects to control for unobserved characteristics that might affect the dependent variable. Findings – The authors find that banks holding more liquid assets take less risk and show a higher subsequent loan growth rate. These results hold for both small and large banks. Novelty – To the authors’ best knowledge, this is one of the earliest studies to carefully examine the effects of liquidity risk on risk-taking behavior and loan growth rate for European banks. Our research suggests that the current Basel III requirement on liquidity ratio can decrease bank’s risking-taking behavior while not necessarily impact their future loan growth. Type of Paper: Empirical JEL Classification: G21, G01, G18. Keywords: Bank Liquidity Risk; Risk-taking Behavior; Loan Growth; Basel III

Banking regulation and supervision: can it enhance stability in Europe?

2014 ◽  
Vol 6 (3) ◽  
pp. 244-269 ◽  
Author(s):  
Faten Ben Bouheni
Keyword(s):  
Risk Taking ◽  
Generalized Method Of Moments ◽  
Banking Regulation ◽  
European Countries ◽  
Bank Risk ◽  
Dynamic Panel ◽  
Content Type ◽  
Regulation And Supervision ◽  
European Banks ◽  
The Relationship

Purpose – This paper aims to find the effects of regulatory and supervisory policies on bank risk-taking. The same regulation and supervision have different effects on bank risk-taking depending on influence factors. These factors were considered and a sample of the largest European banks from France, Germany, UK, Italy, Spain and Greece was used over the period 2005-2011. Design/methodology/approach – In this paper, the author analyses the effects of regulation and supervision on risk-taking. The author uses a sample of the biggest banks from six European countries (France, UK, Germany, Italy, Spain and Greece) over the period 2005-2011. Because the applicable entry of IFRS was in 2005, thus data of European banks are not available before this date. For each country in the sample, the 10 largest banks (defined by total assets) that lend money to firms were identified. The author does not include central banks or postal banks, which generally do not lend money to firms and are described as non-banking institutions (La Porta et al., 2002). Findings – It was found that restrictions on bank activities, supervisors’ power and capital adequacy decrease risk-taking. Thus, regulation and supervision enhance bank’s stability. While, deposit insurance increases the risk due to its association to moral hazard. Finally, it was found that strengthening regulatory and supervisory framework raises the risk-taking and weakens the stability of European banks. Originality/value – The author contributes to existing empirical analyses in three ways. First, the existing literature has drawn a lot of attention on US banks. However, the purpose of this paper is to examine the biggest banks of three European leaders (France, Germany and UK) and three more European countries influenced by the recent crisis (Spain, Italy and Greece) over the period 2005-2011. Second, most studies focus mainly on the relationship between regulation and profitability, yet seldom on the relationship between regulation, supervision and risk-taking. The author focuses on this relationship. Third, this study applies the two-step dynamic panel data approach suggested by Blundell and Bond (1998) and also uses dynamic panel generalized method of moments (GMM) method to address potential problems. The two-step GMM estimator that the author uses is generally the most efficient.

scholarly journals Bank Capital Adequacy Requirements And Risk-Taking Behavior In Tunisia: A Simultaneous Equations Framework

2014 ◽  
Vol 31 (1) ◽  
pp. 231 ◽  
Author(s):  
Faten Ben Bouheni ◽  
Houssem Rachdi
Keyword(s):  
Risk Taking ◽  
Lower Risk ◽  
Risk Measure ◽  
Negative Relationship ◽  
Simultaneous Equations ◽  
Capital Adequacy ◽  
Risk Level ◽  
Bank Capital ◽  
Risk Levels ◽  
Managing Risk

We extend exiting literature on the efficiency of capital adequacy requirements in reducing risk-taking behaviour of Tunisian commercial banks using a new risk measure: the weighted-assets to total assets. To that end, using a simultaneous equations framework, we reached four main results. First, interaction between capitalization and risk level is negative and not significant, which means that an increase in capital is followed by a decrease in banking risk-taking. Second, Tunisian banks dispose of a weak institutional and regulatory level. Third, the larger the banks are, the more they manage their risk, since large banks have more experience in managing risk levels through diversification. Finally, we found a negative relationship between size and bank capitalization, indicating that the larger bank size is the lower risk level is.

scholarly journals Bank competition and risk-taking in the European Union: Evidence of a non-linear relationship

2021 ◽  
Vol 66 (230) ◽  
pp. 35-65
Author(s):  
Bogdan Căpraru ◽  
Iulian Ihnatov ◽  
Nicoleta-Livia Pintilie
Keyword(s):  
Linear Relationship ◽  
Risk Taking ◽  
Business Models ◽  
Bank Competition ◽  
The European Union ◽  
Risk Appetite ◽  
Competition Level ◽  
Non Linear ◽  
European Banks ◽  
The Impact

This paper assesses the impact of bank specialisation and business models on the relationship between competition and risk. We tested the non-linear relationship between bank competition and risk on an extensive sample of 5,119 European banks active during 2000-2018, using system GMM. The results confirmed the nonlinear relationship between competition and risk-taking. Cooperatives are better protected against liquidity risks and are more stable. Well-diversified banking entities take more risks than their counterparts, whereas larger institutions have a lower risk appetite and a higher exposure to liquidity shocks. Future regulations should consider different risk strategies to make them more efficient and to generate the expected outcomes. The most recent regulatory developments have reduced the risk appetite of large financial institutions. Lastly, it is critical that regulators monitor M&A activity and ensure the optimal competition level.

Boys With Epilepsy Are More Susceptible to Risk Taking

2010 ◽  
Vol 44 (10) ◽  
pp. 32
Author(s):  
PATRICE WENDLING
Keyword(s):  
Risk Taking
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