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The relationship between excessive lending, risk premium and risk-taking: evidence from European banks
Banks normally trade-off the amount of loans created by the amount of risk piled up in their assets portfolios. However, their performance can induce a ‘search for yield’ or ‘gamble to survive’ behaviour. Using a sample of 149 European banks during the period 2001-2016, we show that the risk managem...
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| Format: | Default Article |
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2021
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| Online Access: | https://hdl.handle.net/2134/13475061.v1 |
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| _version_ | 1805987730374524928 |
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| author | Thaer Alhalabi Vitor Castro Justine Wood |
| author_facet | Thaer Alhalabi Vitor Castro Justine Wood |
| author_sort | Thaer Alhalabi (4862359) |
| collection | Figshare |
| description | Banks normally trade-off the amount of loans created by the amount of risk piled up in their assets portfolios. However, their performance can induce a ‘search for yield’ or ‘gamble to survive’ behaviour. Using a sample of 149 European banks during the period 2001-2016, we show that the risk management hypothesis holds for the period after the 2007-08 financial crisis and for large banks. Contrarily, the moral hazard hypothesis, under which banks practise excessive lending to relatively risky borrowers that pay higher premium but increase their credit risk, is supported in the pre-crisis period and for small banks. Additionally, we provide important implications to suggest that the post-crisis regulations have restrained banks with poor performance from the ‘gamble to survive’ behaviour. |
| format | Default Article |
| id | rr-article-13475061 |
| institution | Loughborough University |
| publishDate | 2021 |
| record_format | Figshare |
| spelling | rr-article-134750612021-01-10T00:00:00Z The relationship between excessive lending, risk premium and risk-taking: evidence from European banks Thaer Alhalabi (4862359) Vitor Castro (3375743) Justine Wood (1255122) Bank lending Loan pricing Bank performance Bank risk Financial crisis Banks normally trade-off the amount of loans created by the amount of risk piled up in their assets portfolios. However, their performance can induce a ‘search for yield’ or ‘gamble to survive’ behaviour. Using a sample of 149 European banks during the period 2001-2016, we show that the risk management hypothesis holds for the period after the 2007-08 financial crisis and for large banks. Contrarily, the moral hazard hypothesis, under which banks practise excessive lending to relatively risky borrowers that pay higher premium but increase their credit risk, is supported in the pre-crisis period and for small banks. Additionally, we provide important implications to suggest that the post-crisis regulations have restrained banks with poor performance from the ‘gamble to survive’ behaviour. 2021-01-10T00:00:00Z Text Journal contribution 2134/13475061.v1 https://figshare.com/articles/journal_contribution/The_relationship_between_excessive_lending_risk_premium_and_risk-taking_evidence_from_European_banks/13475061 CC BY-NC-ND 4.0 |
| spellingShingle | Bank lending Loan pricing Bank performance Bank risk Financial crisis Thaer Alhalabi Vitor Castro Justine Wood The relationship between excessive lending, risk premium and risk-taking: evidence from European banks |
| title | The relationship between excessive lending, risk premium and risk-taking: evidence from European banks |
| title_full | The relationship between excessive lending, risk premium and risk-taking: evidence from European banks |
| title_fullStr | The relationship between excessive lending, risk premium and risk-taking: evidence from European banks |
| title_full_unstemmed | The relationship between excessive lending, risk premium and risk-taking: evidence from European banks |
| title_short | The relationship between excessive lending, risk premium and risk-taking: evidence from European banks |
| title_sort | relationship between excessive lending, risk premium and risk-taking: evidence from european banks |
| topic | Bank lending Loan pricing Bank performance Bank risk Financial crisis |
| url | https://hdl.handle.net/2134/13475061.v1 |