Moral-Hazard Conduct in the European Banks During the First Wave of the Global Financial Crisis

Paolo Mattana () and Stefania P. S. Rossi ()
Additional contact information
Paolo Mattana: University of Cagliari
Stefania P. S. Rossi: University of Cagliari

A chapter in Financial Crisis, Bank Behaviour and Credit Crunch, 2016, pp 39-52 from Springer

Abstract: Abstract This paper investigates the extent to which public interventions, largely implemented to countervail the effects of the 2007–2009 financial crisis, have generated moral hazard behaviour in large European banks, twisting their risk-taking and profitability profiles according to the so-called “too-big-to-fail” hypothesis. To this end, we devise an empirical framework linking credit risk and profitability changes to bank dimension. By applying a Quantile Regression Approach to a sample of 1476 European financial institutions, and considering the combination of risk and profit size sensitivities at quantile level, we observe that the theoretical hypothesis behind the too big to fail is confirmed when the change in ROA proxies for the risk undertaking. We obtain a different picture—much less consistent with our moral hazard hypothesis—when the change in ROE is employed instead. We also provide a possible explanation for this contradictory pattern by discussing the role of managers versus shareholders in the bank strategic design.

Keywords: Conditional Distribution; Quantile Regression; Moral Hazard; Credit Risk; Bank Size (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-319-17413-6_3

Ordering information: This item can be ordered from
http://www.springer.com/9783319174136

DOI: 10.1007/978-3-319-17413-6_3

Access Statistics for this chapter

More chapters in Contributions to Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().