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Bank profitability, leverage constraints, and risk-taking

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Authors and Corporations: Martynova, Natalya (Author), Ratnovski, Lev (Author), Vlahu, Razvan (Author)
Other Authors: Ratnovski, Lev [Author] • Vlahu, Razvan 1977- [Author]
Type of Resource: E-Book
Language: English
Frankfurt am Main Deutsche Bundesbank [2019]
Series: Deutsche Bundesbank: Discussion paper ; no 2019, 21
Source: Verbunddaten SWB
Lizenzfreie Online-Ressourcen
ISBN: 9783957295965
Summary: Traditional theory suggests that higher bank profitability (or franchise value) dissuades bank risk-taking. We highlight an opposite effect: higher profitability loosens bank borrowing constraints. This enables profitable banks to take risk on a larger scale, inducing risk-taking. This effect is more pronounced when bank leverage constraints are looser, or when new investments can be financed with senior funding (such as repos). The model's predictions are consistent with some notable cross-sectional patterns of bank risk-taking in the run-up to the 2008 crisis.
Physical Description: 1 Online-Ressource (circa 62 Seiten); Illustrationen
ISBN: 9783957295965