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Estimating Risk and Excessive Risk-Taking in Colombia´s Commercial Banks

Diego Ramos-Toro ()

Revista Desarrollo y Sociedad, 2013

Abstract: The document estimates the risk embraced by Colombian commercial banks, and establishes a measurement of excessive risk-taking that is consistent with such estimation. The construction of the excessive-risk measurement follows the basic efficient-portfolio framework, in which the variance of an aggregate portfolio is minimized subject to an observed return. Return and risk-taking in Colombia´s banking industry appear to decrease between December 2007 and May 2011. In spite of this, the excess-risk exhibits an upward trend, and denotes an increasing suboptimality when considered as a proportion of the observed risk. Hence, a reduction in the risk embraced by Colombian banks paradoxically coincides with an increase in their instability.

Keywords: Financial stability; risk attitudes; risk; excessive risk-taking; bank (search for similar items in EconPapers)
JEL-codes: E44 G11 G21 (search for similar items in EconPapers)
Date: 2013
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