Banks’ off-balance sheet activities are among the many factors blamed for the risk-taking that led to the 2007–2008 financial crisis. We test whether and how off-balance sheet exposures influenced risk-taking at publicly traded commercial banks in the G-7 countries between 1998 and 2018. Contrary to expectations, we find strong evidence that larger off-balance sheet exposures are associated with lower aggregate and idiosyncratic risk but higher tail risk. Further, we observe a non-linear relationship between off-balance sheet activities and risk. Our results suggest that placing absolute limits on OBS activities might increase bank risk-taking.
|Journal of International Financial Markets, Institutions & Money
|Number of pages
|Published - Sept 2022
Bibliographical noteEpub ahead of print. Published online: 6 August 2022.
- Bank risk
- Off-balance sheet items
- Financial crisis
- G-7 countries