Does a financial crisis change a bank's exposure to risk? A difference-in-differences approach

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Title: Does a financial crisis change a bank's exposure to risk? A difference-in-differences approach
Author: Mäkinen, Mikko
Organization: Bank of Finland
Department / Unit: Bank of Finland Institute for Emerging Economies (BOFIT)
Series: BOFIT Discussion Papers
Series number: 8/2021
Year of publication: 2021
Publication date: 28.5.2021
Pages: 30
Subject (yso): rahoitusmarkkinat; kriisit; pankit; riskit
Keywords: Bofit-kokoelma; riskinotto; Venäjä
JEL: G01; G21; G32
Other keywords: financial crisis; bank learning; bank risk; Russian banks; Russia
Abstract: Can a major financial crisis trigger changes in a bank’s risk-taking behavior? Using the 2008 Global Financial Crisis as a quasi-natural experiment and a difference-in-differences approach, I examine whether the worst crisis-hit Russian banks – the banks that have strong incentives to behavior-altering changes – can decrease their post-crisis exposure to risk. A shift in risk-taking behavior by these banks indicates the learning hypothesis. The findings are mixed. The evidence concerning credit risk is inconsistent with the learning hypothesis. On the other hand, the evidence concerning solvency risk is consistent with the learning hypothesis and corroborates evidence from the Nordic countries (Berglund and Mäkinen, 2019). As such, bank learning from a financial crisis may not depend on the institutional context and the level of development of national financial market. Several robustness checks with alternative regression specifications are provided.
Table of contents: 1 Introduction . . . . 5 2 The 2008 GFC and the Russian economy . . . . 8 3 Data and empirical approach . . . . 10 3.1 Data . . . . 10 3.2 Dependent and control variables . . . . . 12 3.3 Empirical approach . . . . 13 4 Estimation results . . . . 17 4.1 Main findings . . . . 17 4.2 Robustness checks . . . . 22 5 Conclusion . . . . 25
Rights: https://helda.helsinki.fi/bof/copyright


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