Bank profitability and risk-taking /

Bank profitability and risk-taking /

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Bibliographic Details
Author / Creator:	Martynova, Natalya, author.
Imprint:	[Washington, D.C.] : International Monetary Fund, ©2015.
Description:	1 online resource (43 pages) : illustrations.
Language:	English
Series:	IMF working paper ; WP/15/249 IMF working paper ; WP/15/249.
Subject:	Banks and banking -- Econometric models. Bank profits -- Econometric models. Financial risk -- Econometric models. Banks and banking -- Econometric models.
Format:	E-Resource Book
URL for this record:	http://pi.lib.uchicago.edu/1001/cat/bib/12505601

Hidden Bibliographic Details
Other authors / contributors:	Ratnovski, Lev, (IMF staff), author. Vlahu, Razvan E., 1977- author. International Monetary Fund. Research Department.
ISBN:	1513517589 9781513517582
ISSN:	1018-5941
Notes:	"November 2015." "Research Department." Includes bibliographical references (pages 28-33). Online resource; title from pdf title page (IMF.org Web site, viewed November 30, 2015).
Summary:	Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky 'side activities'(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis. --Abstract.
Standard no.:	10.5089/9781513517582.001

Description
Summary:	Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky 'side activities'(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.
Item Description:	"November 2015." "Research Department."
Physical Description:	1 online resource (43 pages) : illustrations.
Bibliography:	Includes bibliographical references (pages 28-33).
ISBN:	1513517589 9781513517582
ISSN:	1018-5941