The effect of bank organizational risk-management on the pricing of non-deposit debt

Iftekhar Hasan, Emma Peng (), Maya Waisman () and Meng Yan ()
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Emma Peng: Fordham University
Maya Waisman: Fordham University
Meng Yan: Fordham University

Journal of Financial Services Research, 2024, vol. 66, issue 1, No 1, 27 pages

Abstract: Abstract We test whether organizational risk management matters to bondholders of U.S. bank holding companies (BHCs), and find that debt financing costs increase when the BHC has lower-quality risk management. Consistent with bailouts giving rise to moral hazard among bank creditors, we find that bondholders put less emphasis on risk management in large institutions for which bailouts are expected ex-ante. BHCs that maintained strong risk management before the financial crisis had lower debt costs during and after the crisis, compared to other banks. Overall, quality risk management can curtail risk exposures at BHCs and result in lower debt costs.

Keywords: Bank Holding Companies; Risk Management; Debt Financing (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10693-024-00425-x

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