Economics at your fingertips  

Financial crisis, liquidity infusion and risk-taking: The case of Canadian banks

Sana Mohsni and Isaac Otchere

Journal of Banking Regulation, 2015, vol. 16, issue 2, 146-167

Abstract: We examine the effects of government liquidity infusion on the risk-taking behavior of Canadian banks and find that banks that received government financial assistance subsequently experienced a decrease in risk. The reduction in risk is induced by a shift from non-interest income-related activities to more traditional interest income-generating activities. After controlling for bank-specific risk factors, we find that while the liquidity infusion has made the banks more safe, higher amounts of funds received appears to induce higher investments in non-interest income-related activities. Further analysis aimed at disentangling the effects of the financial crisis from those of the liquidity infusion using observations of a control sample of banks that did not receive government support shows that risk taking by the focal banks in the aftermath of the financial crisis is significantly lower than that of the control sample. We argue that the stringent regulatory regime (involving high capital standards, tight mortgage market regulations, lower leverage ratio requirements and close supervision of banks) and the need to preserve rent seem to account for the risk-taking behavior of the banks.

Date: 2015
References: Add references at CitEc
Citations Track citations by RSS feed

Downloads: (external link) Link to full text PDF (application/pdf) Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

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:

Ordering information: This journal article can be ordered from

Access Statistics for this article

Journal of Banking Regulation is currently edited by Dalvinder Singh

More articles in Journal of Banking Regulation from Palgrave Macmillan
Series data maintained by Sonal Shukla ().

Page updated 2018-02-15
Handle: RePEc:pal:jbkreg:v:16:y:2015:i:2:p:146-167