Risk Management, Capital Structure and Lending at Banks

32 Pages Posted: 12 Dec 2001

See all articles by A. Sinan Cebenoyan

A. Sinan Cebenoyan

Hofstra University - Frank G. Zarb School of Business; New York University (NYU) - Department of Finance

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: October 2001

Abstract

We test how active management of bank credit risk exposure through the loan sales market affects capital structure, lending, profits, and risk. We find that banks that rebalance their C&I loan portfolio exposures by both buying and selling loans - that is, banks that use the loan sales market for risk management purposes rather than to alter their holdings of loans - hold less capital than other banks; they also make more risky loans (loans to businesses) as a percentage of total assets than other banks. Holding size, leverage and lending activities constant, banks active in the loan sales market have lower risk and higher profits than other banks. We conclude that increasingly sophisticated risk management practices in banking are likely to improve the availability of bank credit but not to reduce bank risk.

Keywords: Risk management, bank lending, capital structure

JEL Classification: G2

Suggested Citation

Cebenoyan, Ahmet Sinan and Strahan, Philip E., Risk Management, Capital Structure and Lending at Banks (October 2001). Available at SSRN: https://ssrn.com/abstract=293378 or http://dx.doi.org/10.2139/ssrn.293378

Ahmet Sinan Cebenoyan

Hofstra University - Frank G. Zarb School of Business ( email )

Dept. of Finance
Hempstead, NY 11549
United States
516-463-5702 (Phone)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Philip E. Strahan (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
4,299
Abstract Views
15,109
rank
1,936
PlumX Metrics