The determinants of credit and insolvency risk of European commercial banks: a dynamic panel data analysis

The effect of Economic Policy Uncertainty on the credit risk of US commercial banks

“…A priori, these results support Salas and Saurina (2002) studies, who argued that larger banks take fewer risks. Particularly, these outcomes support the inverse relationship between bank size and credit risk found by Jabra et al (2017) and the moderating effect of bank concentration on the relationship between EPU and banks' non‐performing loans showed by Karadima and Louri (2020). These outcomes support the assertion of Tran et al (2020) regarding the importance of the bank's size in the diversification of income from different activities other than credit interests in the face of high EPU.…”

“…Larger banks tend to be riskier, in general, due to moral hazard (Uhde & Heimeshoff, 2009), but also take less risk because of their efficiency and managerial capacity (Salas & Saurina, 2002). Jabra et al (2017) found an inverse relationship between credit risk and bank size in a study of 280 European banks with panel data for 2003–2013. Specifically, Karadima and Louri (2020), employing a panel dataset of 507 banks from four major euro area countries between 2005 and 2017, demonstrated how a high bank concentration has a significant moderating effect on the positive relationship between EPU and banks' non‐performing loans.…”

“…Most of the literature shows that capitalization and bank risk are inversely related (Baselga-Pascual et al, 2015). However, high solvency could also lead banks to lower the quality of their loans to compensate for lower leverage and generating a positive relationship between capitalization and credit risk (Jabra et al, 2017). Exploring the impact of EPU on credit risk considering a bank's solvency as an additional determinant should contribute to shed more light on this controversy.…”

Macroeconomic determinants of credit risk: a P-VAR approach evidence from Europe

“…This vulnerability can be attributed to the big association between NPL and banking crises. Several studies discuss bank failure problem and find that the assets quality is a leading indicator of insolvency (Ben Jabra et al, 2017;Kashif et al, 2016;Klein, 2013), and banks that have a high level of bad loans end up by announcing bankruptcy. For this, a large amount of bad loans in the banking system generally results in a bank failure.…”