The ‘risk dividend’ in banks’ internal capital markets

Yener Altunbas, John Thornton and Tianshu Zhao ()
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Tianshu Zhao: Birmingham Business School, University of Birmingham

No 19004, Working Papers from Bangor Business School, Prifysgol Bangor University (Cymru / Wales)

Abstract: We examine the impact of banks’ internal capital markets (ICMs) before the 2008-09 financial crisis on bank risk-taking during the crisis in a panel of 8,068 banks across 16 countries. The size of ICMs was an important driver of risk during the crisis when banks with larger ICMs exhibited lower risk levels. Larger ICMs reduced risk further for well capitalized banks. Banks more likely to be in trouble in a crisis are likely to have smaller ICMs, be larger in size, less well capitalized, less efficient, less profitable, and more dependent on market funding.

Keywords: Banks; governance; risk; CEO power; boards of directors; institutional investors (search for similar items in EconPapers)
JEL-codes: G15 G21 G32 (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:bng:wpaper:19004

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