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Is there a link from bank size to risk taking?

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  • Ray Barrell
  • Tatiana Fic
  • Phillip Davis

Abstract

In the wake of the subprime crisis, there has been widespread discussion of the disproportionate risks posed to the financial system by large banks that may consider themselves 'too big to fail'. This has led in turn to suggestions that radical policies with the effect of reducing bank size and complexity may be needed. We present results of GMM estimation for 713 OECD banks which show that size is indeed related to risk taking, as measured by charge-offs, and that banks with large proportions of Tier 2 capital are particularly vulnerable to adverse incentives.

Suggested Citation

  • Ray Barrell & Tatiana Fic & Phillip Davis, 2010. "Is there a link from bank size to risk taking?," National Institute of Economic and Social Research (NIESR) Discussion Papers 367, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:367
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    References listed on IDEAS

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    1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    2. Dale K. Osborne & Seokwon Lee, 2001. "Effects of Deposit Insurance Reform on Moral Hazard in US Banking," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(7‐8), pages 979-992, September.
    3. Dale K. Osborne & Seokwon Lee, 2001. "Effects of Deposit Insurance Reform on Moral Hazard in US Banking," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(7&8), pages 979-992.
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    1. Ray Barrell & Tatiana Fic & John Fitz Gerald, 2011. "The Banking Sector And Recovery In The Eu Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 216(1), pages 41-52, April.
    2. Michael Brei & Blaise Gadanecz, 2012. "Public recapitalisations and bank risk: evidence from loan spreads and leverage," BIS Working Papers 383, Bank for International Settlements.
    3. Cornand, Camille & Gimet, Céline, 2012. "The 2007–2008 financial crisis: Is there evidence of disaster myopia?," Emerging Markets Review, Elsevier, vol. 13(3), pages 301-315.
    4. Manh Hung Pham & Nhat Minh Nguyen, 2023. "Bank funding diversity, risk and profitability: Evidence from Vietnam in the context of the Covid-19 pandemic," Cogent Business & Management, Taylor & Francis Journals, vol. 10(1), pages 2191305-219, December.

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