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Opaqueness and Bank Risk Taking

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  • Patrick Behr

    (Brazilian School of Public and Business Administration (EBAPE))

Abstract

This paper investigates the relationship between opaqueness and bank risk taking. Using a sample of 199 banks from 38 countries over the period January 1996 to December 2006, I analyze whether more opaque banks are riskier than less opaque banks. I find suggestive evidence that commonly used proxies for bank opaqueness are significantly related to bank risk taking as measured by the Merton PD and the bank-individual Z-score, even after accounting for potential simultaneity between risk taking and opaqueness. More opaque banks seem to engage more in risk taking than less opaque banks. This result provides support to the common view that bank opaqueness is problematic and that transparency among financial institutions should be increased.

Suggested Citation

  • Patrick Behr, 2012. "Opaqueness and Bank Risk Taking," Brazilian Review of Finance, Brazilian Society of Finance, vol. 10(4), pages 499-527.
    • Handle: RePEc:brf:journl:v:10:y:2012:i:4:p:499-527
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    More about this item

    Keywords

    Banks; Opaqueness; Risk Taking; Bank Regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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