Resource title

International Banking and the Allocation of Risk

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Resource description

Macroeconomic risks could magnify individual bank risk. Mitigating the influence of economy-wide risks on banks could therefore be very important to maintain a smooth-running banking system. In this paper, we explore the extent to which macroeconomic risks affect banks. We use a bank-level dataset on over 2,000 banks worldwide for the years 1995-2002 to study the effect of macroeconomic volatility, the openness of the banking system, and banking regulations on bank risks. Our measure of bank risk is the volatility of banks? pretax profits. We find that macroeconomic volatility increases banks? profit volatility and that international openness of the banking system lowers bank risk. We find no impact of banking regulation on profit volatility. Our findings suggest that if policymakers want to lower bank risk, they should seek to lower macroeconomic volatility as well as increase openness in the banking system.

Resource author

Claudia M. Buch, Gayle L. DeLong, Katja Neugebauer

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/21870

Resource license

Adapt according to the presented license agreement and reference the original author.