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

scholarly journals Does Trade Openness Affect Bank Risk-Taking Behavior? Evidence from BRICS Countries

Economies ◽  
2020 ◽  
Vol 8 (3) ◽  
pp. 75 ◽  
Author(s):  
Mohammed Mizanur Rahman ◽  
Munni Begum ◽  
Badar Nadeem Ashraf ◽  
Md. Abdul Kaium Masud
Keyword(s):  
Risk Taking ◽  
Fixed Effects ◽  
Trade Openness ◽  
Least Square ◽  
Estimation Methods ◽  
Bank Risk ◽  
Brics Countries ◽  
Long Run ◽  
Risk Taking Behavior ◽  
The Impact

In this paper, we examine the impact of trade openness on bank risk-taking behavior employing a panel dataset of 899 banks from the BRICS (i.e., Brazil, Russia, India, China, and South Africa) countries over the period 2000–2017. We find that higher trade openness lowers bank risk-taking. Our results are robust when we use alternative proxies of trade openness and bank risk-taking, estimate country-wise regressions, or use alternative estimation methods such as system Generalized Methods of Moments (GMM), fixed effects, pooled Ordinary Least Square (OLS), and Vector Error Correction Model (VECM) models. We also observe higher trade openness decreases bank risk-taking in both the short and long run. Moreover, banks in more open countries perform relatively better during the crisis period further signifying the diversification benefits of openness. Together, our findings imply the beneficial impact of trade openness for financial sector stability.

scholarly journals The impact of liquidity risk on bank profitability: some empirical evidence from the European banks following the introduction of Basel III regulations

2019 ◽  
Vol 18 (4) ◽  
Author(s):  
Olga Golubeva ◽  
Michel Duljic ◽  
Ripsa Keminen
Keyword(s):  
Positive Impact ◽  
Weighted Least Squares ◽  
Research Question ◽  
Liquidity Risk ◽  
Basel Iii ◽  
Data Set ◽  
Bank Profitability ◽  
Coverage Ratio ◽  
European Banks ◽  
The Impact

Research Question: The study investigates the impact of liquidity on bank profitability following implementation of the Basel III regulations. Motivation: The theoretical framework of the paper draws upon previous research (Athanasoglou et al., 2008; Arif & Nauman Anees, 2012 and Dietrich et al., 2014) and assumes liquidity ratios to have a varying influence on bank profitability, depending upon a bank's specific and macroeconomic indicators. Idea: This study considers multiple proxies of bank liquidity, including Liquidity Coverage Ratio, a new measure inspired by the Basel III framework, and Loan-to-deposit and Financing gap ratio. Alongside traditionally-applied profitability measures, Earnings before Taxes, Depreciation and Amortisation are assumed to be alternative proxies. Data: In the study, a data set of 45 European banks with 180 observations during 2014-2017 and 37 observations for 2018 has been analysed. Tools: The study proposes a quantitative model based upon Ordinary Least Squires techniques complemented by Weighted Least Squares regressions analysis. Findings: The alternative liquidity risk measures have a significant and positive impact only on some profitability proxies, and an insignificant effect on others. The Basel III liquidity measure, LCR, was an insignificant contributor to all return proxies, which requires further investigation. The results also indicate that an increase in bank size and net provision for loan losses decreases profitability proxies. We also found mixed results concerning the effects of deposits and securities gains and losses on bank profits, and provided possible explanation.

Capital regulation, competition and risk-taking behavior of Indian banks in a simultaneous approach

2018 ◽  
Vol 44 (4) ◽  
pp. 459-477 ◽  
Author(s):  
Santi Gopal Maji ◽  
Preeti Hazarika
Keyword(s):  
Human Capital ◽  
Risk Taking ◽  
Value Added ◽  
Capital Adequacy ◽  
Bank Risk ◽  
Capital Regulation ◽  
Content Type ◽  
Risk Taking Behavior ◽  
Indian Banks ◽  
The Impact

Purpose The purpose of this paper is to investigate the association between capital regulation and risk-taking behavior of Indian banks after incorporating the influence of competition. Further, the study intends to enrich the existing literature by providing empirical evidence on the role of human resources in managing risk along with the influence of other bank specific and macroeconomic variables. Design/methodology/approach Secondary data on 39 listed Indian commercial banks are collected from “Capitaline Plus” corporate data database for a period of 15 years. Capital is measured by capital adequacy ratio as defined by the regulators, and two definitions of risk – credit risk and insolvency risk – are employed. Competition is measured by Herfindahl-Hirschman deposits index, concentration ratio and H-statistic. The value-added intellectual coefficient model is employed to compute human capital efficiency (HCE). Three-stage least squares technique in a simultaneous equation framework is used to estimate the coefficients. Findings The study finds that absolute level of regulatory capital and bank risk are positively associated, although the influence of capital on risk is not statistically significant. The influence of competition on risk is negative for all the models, which supports the “competition stability” view. The impact of human capital on bank risk is also negative for all cases. Practical implications The findings of the study are useful for the decision makers in several ways based on the inverse influence of competition and HCE on bank risk. Further, the observed positive association between capital and risk indicates that the capital regulation is not sufficient to enhance the stability in the banking sector. Originality/value This is the first study in the Indian context that incorporates the competition in the banking industry as an explanatory variable in the extant bank capital and risk relationship.

Assessing the impact of risk-taking behavior on road crash involvement among University students residing in two Mediterranean countries

2011 ◽  
Vol 49 (6) ◽  
pp. 933-938 ◽  
Author(s):  
Constantine N. Antonopoulos ◽  
Evi Germeni ◽  
Flora Bacopoulou ◽  
Vassiliki Kalampoki ◽  
Stefanos Maltezos ◽  
...  
Keyword(s):  
University Students ◽  
Risk Taking ◽  
Mediterranean Countries ◽  
Road Crash ◽  
Risk Taking Behavior ◽  
The Impact

scholarly journals The Impact of Banking Sector Competition on Banks’ Risk-Taking in Transition Economies of Central and South-Eastern Europe

2018 ◽  
Vol 13 (1) ◽  
pp. 31-42
Author(s):  
Arben Mustafa ◽  
Valentin Toçi
Keyword(s):  
Eastern Europe ◽  
Risk Taking ◽  
Fixed Effects ◽  
Banking Sector ◽  
Negative Impact ◽  
Eu Countries ◽  
South Eastern ◽  
South Eastern Europe ◽  
The Impact ◽  
The Eu

Abstract This paper uses the Panzar-Rosse H-statistic to provide empirical evidence on the impact of competitive behaviour of banks on risk-taking, using the Fixed Effects Vector Decomposition Method on panel data of banks in 15 Central and South-Eastern Europe countries during the period 1999-2009. The findings suggest that banking sector competition has had a negative impact on banks’ risk-taking implying that competition contributed to the improvement of the loan-portfolio quality. However, the results differ significantly when distinguishing between the EU and non-EU countries of the CESEE region. While for the EU countries the relationship between banking sector competition and risk-taking remains negative, this relationship is positive for the non-EU countries of the region, suggesting that an increase of competition in the non-EU countries may be detrimental for the stability of the banking sector in these countries. These results are robust to different model specifications and measures of competition

scholarly journals The Impact of Liquidity Risk Management on the Financial Performance of Saudi Arabian Banks

2021 ◽  
Vol 11 (1) ◽  
pp. 67-75
Author(s):  
Ishaq Hacini ◽  
Abir Boulenfad ◽  
Khadra Dahou
Keyword(s):  
Risk Management ◽  
Financial Performance ◽  
Fixed Effects ◽  
Negative Impact ◽  
Control Variable ◽  
Liquidity Risk ◽  
Saudi Arabian ◽  
Return On Equity ◽  
Conventional Banks ◽  
The Impact

This paper aims to analyze the impact of liquidity risk management on the financial performance of selected conventional banks in Saudi Arabia for the period of 2002-2019. Liquidity risk is measured with the loan to deposit ratio (LTD) and cash to deposit ratio (CTD). Financial performance is measured by the Return on Equity (ROE). Equity to total asset ratio (ETA) is used as the control variable. The study uses the panel data method (Pool, Fixed-effects and Random-effects) for testing the study hypothesis. The results show that liquidity risk has a significant negative impact on the financial performance measured by Saudi Arabian banks.

scholarly journals Capital Flows and Bank Risk-Taking Behavior: Evidence From Indonesia

2020 ◽  
Vol 9 (s1) ◽  
pp. 33-53
Author(s):  
Bayront Yudit Rumondor ◽  
Pakasa Bary
Keyword(s):  
Risk Taking ◽  
Capital Flows ◽  
Emerging Market ◽  
Capital Inflows ◽  
Bank Risk ◽  
Portfolio Investment ◽  
Industry Level ◽  
Country Level ◽  
Risk Taking Behavior ◽  
The Impact

AbstractThis paper investigates the impact of capital flows on bank risk-taking behavior. It undertakes two levels of empirical estimations, namely (i) single-country industry-level; and (ii) multi-country industry-level estimations, covering emerging market economies. The results suggest that capital inflows, in the form of portfolio investment, is significant in raising risk-taking behavior. Large banks are less aggressive in their risk-taking behavior vis-à-vis smaller banks. Such impact of portfolio investment on risk-taking behavior is also shown in the multi-country level estimates.

scholarly journals The Effect of Executive Compensation on Credit Default Swap Spread

2019 ◽  
Vol 21 (1) ◽  
pp. 19
Author(s):  
Meizaroh Meizaroh ◽  
Masripah Masripah
Keyword(s):  
Executive Compensation ◽  
Risk Taking ◽  
Time Series Data ◽  
Credit Default Swap ◽  
Best Interests ◽  
Series Data ◽  
Credit Default ◽  
Default Swap ◽  
Risk Taking Behavior ◽  
The Impact

Investors have been trying to formulate the optimum composition of executives’ compensation which will incentivize the executives to perform better and act in the shareholders’ best interests. This study aims to find empirical evidence about the impact of executive compensation on the default risk with the Credit Default Swap (CDS) spread as the proxy, using panel data to test the research model, which combines the analysis of cross-section and time series data. The study is conducted based on 1,416 observations of 177 U.S. companies from 2008-2015. The data are mainly collected from Datastream, Compustat, CRSP, and the US SEC’s EDGAR database. The current study provides a contribution by suggesting that executives’ compensation will trigger risk-taking behavior. The results of this study reveal, firstly, both equity-based compensation and debt-like compensation induce risk-taking behavior by the executives. Secondly, the correlation between both the form of the compensation and the CDS spread is weakened in a high information asymmetry environment. Lastly, this study finds that a CFO’s compensation has more influence on the CDS spread, compared to the other board executives, but this condition only occurs when the compensation is awarded in the form of debt-like compensation. To improve the generalization of the results, a further study may consider expanding the sample into several countries.

scholarly journals RISK TAKING BEHAVIOR OF INDONESIAN BANKS: ANALAYSIS ON THE IMPACT OF DEPOSIT INSURANCE COOPERATION ESTABLISHMENT

2013 ◽  
Vol 15 (3) ◽  
pp. 3-25
Author(s):  
Moch Doddy Ariefianto ◽  
Soenartomo Soepomo
Keyword(s):  
Risk Taking ◽  
Deposit Insurance ◽  
Interest Rate Risk ◽  
Basel Ii ◽  
Data Set ◽  
Explanatory Variables ◽  
Before And After ◽  
Bank Behavior ◽  
Risk Taking Behavior ◽  
The Impact

This paper studies the risk taking behavior of Indonesian Banking Industry, especially before and after the establishment and the implementation of Deposit Insurance Corporation (IDIC). Using common set of explanatory variables; we test several empirical models to reveal the conduct of risk management by banks. In the spirit of BASEL II Accord, this paper take closer look at three types of risk behaviors namely credit risk, market or interest rate risk and operational risk, prior and post the establishment of IDIC. We tested the hypotheses using panel data set of banks operational in period of 2000-2009. The dataset consists of 121 banks with semiannual frequency (2420 observations). Our findings show that these variables explain well the three type bank risk exposures. The implementation of IDIC alters the bank behavior albeit in somewhat different way than initially hypothesized. The risk taking responses also varies across bank types. We found that State Owned Enterprise banks (SOE) behave differently relative to the rest types of the bank. Related to size, SOE banks behave more conservative after the implementation of IDIC. On the other hand its response on conditioned capital post the IDIC implementation is the opposite; they became more aggressive. We view the public pressure on this state banks has influenced the way they manage the risk.Keywords : Risk taking behavior, BASEL II, Deposit Insurance.JEL Classification: G11, G21, G32, C23

scholarly journals Hiring the Right CEO: How Does the Type of CEO Industry Experience Affect Firm Performance, Firm Risk-Taking Behavior, and CEO Compensation?

2021 ◽  
Vol 22 (2) ◽  
pp. 828-845
Author(s):  
Candra Chahyadi ◽  
Trang Doan ◽  
Junnatun Naym
Keyword(s):  
Firm Performance ◽  
Risk Taking ◽  
Ceo Compensation ◽  
High Growth ◽  
Firm Risk ◽  
Business Application ◽  
Risk Taking Behavior ◽  
Lead Firm ◽  
The Impact ◽  
Industry Experience

This paper examines how the type of CEOs’ industry experience (whether a CEO has cross-industry or specific-industry experience) on firm performance, firm risk-taking behavior, and their own compensation. We find that CEOs with cross-industry experience tend to relatively lower the firm performance as well as invest less on R&D. On the other hand, CEOs with specific-industry experience lead firm to higher performance and invest more on R&D expenditures until it reaches a certain threshold, especially among high-growth firms. Total compensation paid to the CEO does not seem to be affected by the type of CEO industry experience. This paper contributes to the literature that examines the impact of CEO characteristics on firm outcomes and CEO compensation. One important business application of our paper is that to optimize firm performance, firms should hire CEOs with the length of specific-industry experience not beyond the threshold levels.

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