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Risk Management, Capital Structure and Capital Budgeting in Financial Institutions

Authors: Cebenoyan, A. Sinan
Strahan, Philip E.
Issue Date: 27-Sep-2000
Series/Report no.: S-FI-00-05
Abstract: We test how active management of bank credit risk exposure affects capital structure, capital budgeting and profits. We find that banks that rebalance their C&I loan portfolio exposures by both buying and selling loans hold less capital and lower levels of liquid assets than other banks; they also lend more to businesses, both as a percentage of total assets and as a percentage of their overall lending, and they enjoy higher profits. The results hold controlling for bank size and holding company affiliation and are robust over time. We conclude that increasingly sophisticated risk management practices in banking are likely to improve the availability of bank credit.
Appears in Collections:Financial Institutions

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