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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Bank funding and risk taking
Organization Unit
  • Alessandro Ferrari
  • Carmen Garcia Galindo
  • Matic Petricek
  • Andreas Winkler
  • English
Institution ADEMU
Series Name ADEMU Working Papers Series
Number 2018/123
Number of Pages 28
Date 2018
Abstract Text In this paper we use a novel approach to address issues of endogeneity in estimating a causal effect of leverage on risk taking by banks. Using data on local bank office deposits and local unemployment we construct an instrument to use in a regression of leverage on a measure of risk taking constructed from new issuance of loans. The results (i.) confirm that due to limited liability banks increase their risk taking after an exogenous increase in leverage, and (ii.) that an increase in deposit supply has a direct positive effect on risk taking by banks.
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