Bank Risk During the Financial Crisis: Do Business Models Matter?
Posted: 3 Feb 2012 Last revised: 6 Feb 2012
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Bank Risk During the Financial Crisis: Do Business Models Matter?
Date Written: February 1, 2012
Abstract
We exploit the 2007-2009 financial crisis to analyze how risk relates to bank business models. Institutions with higher risk exposure had less capital, larger size, greater reliance on short-term market funding, and aggressive credit growth. Business models related to significantly reduced bank risk were characterized by a strong deposit base and greater income diversification. The effect of business models is non-linear: it has a different impact on riskier banks. Finally, it is difficult to establish in real time whether greater stock market capitalization involves real value creation or the accumulation of latent risk.
Keywords: bank risk, business models, bank regulation, financial crisis, Basle III
JEL Classification: G21, G15, E58, G32
Suggested Citation: Suggested Citation