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Banks' risk-taking within a banking union

Author

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  • Farnè, Matteo
  • Vouldis, Angelos

Abstract

We study the relationship between banks’ size and risk-taking in the context of supranational banking supervision. Consistently with theoretical work on banking unions and in contrast to analyses emphasising incentives underpinned by the too-big-to-fail effect, we find an inverse relationship between banks’ size and non-performing loan growth for a sample of European banks. Evidence is provided that the mechanism operates through the enhanced organisational efficiency of the supranational set-up rather than incentives alignment among the supervisors and the banks. JEL Classification: F33, G21, G28, G32, C20

Suggested Citation

  • Farnè, Matteo & Vouldis, Angelos, 2021. "Banks' risk-taking within a banking union," Working Paper Series 2595, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20212595
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    References listed on IDEAS

    as
    1. Priyank Gandhi & Hanno Lustig, 2015. "Size Anomalies in U.S. Bank Stock Returns," Journal of Finance, American Finance Association, vol. 70(2), pages 733-768, April.
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    More about this item

    Keywords

    banking union; euro area; non-performing loans; supervision; too-big-to-fail;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • 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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General

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