EconPapers    
Economics at your fingertips  
 

Risk mitigating versus risk shifting: evidence from banks security trading in crises

Jose-Luis Peydro, Andrea Polo, Enrico Sette and Victoria Vanasco

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We show that risk-mitigating incentives dominate risk-shifting incentives in fragile banks. We study security trading by banks, as banks can easily and quickly change their risk exposure within their security portfolio. For identification, we exploit different crisis shocks and supervisory ISIN-bank-month-level data. Less capitalized banks take relatively less risk after financial stress shocks. Results hold within identical regulatory capital risk weights categories. Moreover, additional tests suggest that banks' own incentives, rather than supervision, are the main drivers. Results hold for the different crisis shocks since 2007/08, including the COVID-19 one. A model of bank behavior rationalizes our findings.

Keywords: risk shifting; financial crises; securities; bank capital; interbank funding; concentration risk; uncertainty; risk weights; available for sale; held to maturity; trading book; COVID-19 (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2020-11, Revised 2023-02
New Economics Papers: this item is included in nep-ban and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://econ-papers.upf.edu/papers/1753.pdf Whole Paper (application/pdf)

Related works:
Working Paper: Risk mitigating versus risk shifting: Evidence from banks security trading in crises (2023) Downloads
Working Paper: Risk Mitigating versus Risk Shifting: Evidence from Banks Security Trading in Crises (2020) Downloads
Working Paper: Risk Mitigating versus Risk Shifting: Evidence from Banks Security Trading in Crises (2020) Downloads
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:upf:upfgen:1753

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).

 
Page updated 2024-05-20
Handle: RePEc:upf:upfgen:1753