Abstract
We depart from existing literature by invoking analysts' forecasts to measure banking system opacity and then investigate the impact of such opacity on bank risk-taking, using a large panel of US bank holding companies, over the 1995--2013 period. We uncover three new results. Firstly, we find that opacity increases insolvency risks among banks. Secondly, we establish that the relationship between opacity and bank risk-taking is accentuated by the degree of banking market competition. Thirdly, we show that the bank business model moderates the risk-taking incentives of opaque banks, albeit only marginally. Overall, these findings suggest that the analysts’ forecast measure of bank opacity is useful for understanding risk-taking by publicly-traded banks, with important implications for bank stability.
Original language | English |
---|---|
Pages (from-to) | 81-95 |
Journal | Journal of Financial Stability |
Volume | 33 |
Early online date | 1 Nov 2017 |
DOIs | |
Publication status | Published - Dec 2017 |
Keywords
- Bank opacity
- Analysts’ forecasts
- bank stability
- banking market competition
- bank business models