2020
DOI: 10.2139/ssrn.3732831
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Risk Mitigating versus Risk Shifting: Evidence from Banks Security Trading in Crises

Abstract: We show that risk mitigating incentives dominate risk shifting incentives in fragile banks. Risk shifting could be particularly severe in banking since it is the most opaque industry and banks are one of the most leveraged corporations with very low skin in the game. To analyze this question, we exploit security trading by banks during financial crises, as banks can easily and quickly change their risk exposure within their security portfolio. However, in contrast with the risk shifting hypothesis, we find tha… Show more

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Cited by 2 publications
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“…The sensitivity of credit supply along those various margins may in turn help banks achieve more stable net interest margins (Drechsler, Savov and Schnabl, 2021;Paul, 2022Paul, , 2023. Abbassi et al (2016), Peydró, Polo and Sette (2021), Carpinelli and Crosignani (2021), Peydró et al (2023), andAbbassi et al (2023) also use security-and loan-level data in combination. However, their focus is on the trade-off that banks face from investing in securities of different risk categories, and vis-á-vis loans.…”
Section: Introductionmentioning
confidence: 99%
“…The sensitivity of credit supply along those various margins may in turn help banks achieve more stable net interest margins (Drechsler, Savov and Schnabl, 2021;Paul, 2022Paul, , 2023. Abbassi et al (2016), Peydró, Polo and Sette (2021), Carpinelli and Crosignani (2021), Peydró et al (2023), andAbbassi et al (2023) also use security-and loan-level data in combination. However, their focus is on the trade-off that banks face from investing in securities of different risk categories, and vis-á-vis loans.…”
Section: Introductionmentioning
confidence: 99%