Bank profitability, leverage constraints, and risk-taking

Arbeitspapier

Traditional theory suggests that higher bank profitability (or franchise value) dissuades bank risk-taking. We highlight an opposite effect: higher profitability loosens bank borrowing constraints. This enables profitable banks to take risk on a larger scale, inducing risk-taking. This effect is more pronounced when bank leverage constraints are looser, or when new investments can be financed with senior funding (such as repos). The model's predictions are consistent with some notable cross-sectional patterns of bank risk-taking in the run-up to the 2008 crisis.

Angaben zum Objekt

• ISBN: 978-3-95729-596-5
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Deutsche Bundesbank Discussion Paper ; No. 21/2019

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Financial Institutions and Services: Government Policy and Regulation
• Thema: Banks ; Risk-Taking ; Leverage ; Funding Structure ; Crises

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Martynova, Natalya ; Ratnovski, Lev ; Vlahu, Razvan E.
• Ereignis: Veröffentlichung
• (wer): Deutsche Bundesbank
• (wo): Frankfurt a. M.
• (wann): 2019

Weitere Informationen

• Handle: http://hdl.handle.net/10419/200064
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ