Paper #1753

Título:

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

Autores:

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

Fecha:

Noviembre 2020

Resumen:

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.

Palabras clave:

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

Códigos JEL:

G01, G21, G28

Área de investigación:

Finanzas y Contabilidad

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