Measuring Excessive Risk-Taking in Banking
AbstractIn this paper we propose a new approach to the assessment of excessive risk-taking by a banking sector. We use the portfolio approach to assess the optimal risk-return combination of a bankâ€™s portfolio, based on data for 32 categories of loans. It provides a benchmark for the optimality of the bankâ€™s portfolio. We apply this method on an exhaustive sample of Czech banks for the period January 2005â€“-February 2008. We observe an average excess of risk-taking of 33% of the optimal risk (excessive risk-taking thus measures the percentage reduction in the risk of the portfolio that the banking sector could have exhibited had the portfolio been efficient) and a reduction of this excess risk over the analysed period.
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Bibliographic InfoPaper provided by Czech National Bank, Research Department in its series Working Papers with number 2009/3.
Date of creation: Sep 2009
Date of revision:
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Bank; financial stability; risk-taking; transition countries.;
Other versions of this item:
- Jiri Podpiera & Laurent Weill, 2010. "Measuring Excessive Risk-Taking in Banking," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(4), pages 294-306, November.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G - Financial Economics
- P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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