Paper #1753

Títol:

Risk mitigating versus risk shifting: evidence from banks security trading in crises

Autors:

José-Luis Peydró, Andrea Polo, Enrico Sette i Victoria Vanasco

Data:

Novembre 2020 (Revisió: Febrer 2023)

Resum:

We show that risk-mitigating incentives dominate risk-shifting incentives in fragile banks. We study security trading by banks, as banks can easily and quickly change their risk exposure within their security portfolio. For identification, we exploit different crisis shocks and supervisory ISIN-bank-month-level data. Less capitalized banks take relatively less risk after financial stress shocks. Results hold within identical regulatory capital risk weights categories. Moreover, additional tests suggest that banks' own incentives, rather than supervision, are the main drivers. Results hold for the different crisis shocks since 2007/08, including the COVID-19 one. A model of bank behavior rationalizes our findings.

Paraules clau:

risk shifting, financial crises, securities, bank capital, interbank funding, concentration risk, uncertainty, risk weights, available for sale, held to maturity, trading book, COVID-19

Codis JEL:

G01, G21, G28

Àrea de Recerca:

Finances i Comptabilitat

Comentari:

Winner of the 2021 ECGI Finance Prize for the best working paper in 2020

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