Do Traditional Off-balance Sheet Exposures Increase Bank Risk?

Mamiza Haq*, David Tripe, Rama Seth

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

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.
Original languageEnglish
Article number101627
JournalJournal of International Financial Markets, Institutions & Money
Volume80
Number of pages22
ISSN1042-4431
DOIs
Publication statusPublished - Sept 2022

Bibliographical note

Epub ahead of print. Published online: 6 August 2022.

Keywords

  • Bank risk
  • Off-balance sheet items
  • Financial crisis
  • G-7 countries

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