Economics at your fingertips  

What influences banks’ choice of credit risk management practices? Theory and evidence

Dilek Bülbül, Hendrik Hakenes and Claudia Lambert

Journal of Financial Stability, 2019, vol. 40, issue C, 1-14

Abstract: Banks use different risk management practices with varying levels of sophistication. This paper examines the factors that determine the choice of risk-management practices. In a theoretical model, we identify two main determinants for the choice of risk management tools: bank competition and sector concentration in the loan market. We empirically test the predictions of our model using hand-collected data on the credit risk management of 249 German savings banks. The results are in line with our theory: Competition pushes banks to implement advanced risk management practices. Sector concentration in the loan market promotes credit portfolio modeling, but it inhibits credit risk transfer.

Keywords: Banking; Risk management; Credit risk; Credit portfolio modeling; Credit risk transfer (search for similar items in EconPapers)
JEL-codes: G21 L10 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman

More articles in Journal of Financial Stability from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-06-21
Handle: RePEc:eee:finsta:v:40:y:2019:i:c:p:1-14