The Impact of Managerial Style on Bank Credit Risk Responses to Systemic Crises: Examining Syndicated Bank Loan Portfolios
80 Pages Posted: 15 Jan 2018 Last revised: 6 Jan 2021
Date Written: March 15, 2018
When banks are confronted with systemic crises, some banks reduce the credit risk in their loan portfolios, whereas others exploit potential government bailouts and increase their internal credit risk in their loan portfolios. Using a connectedness sample method identifying managerial styles based on both asset and liability side positions, I find that asset innovators most aggressively reduce within-bank credit risk during financial crises, whereas liability innovators respond by increasing internal bank credit risk. In contrast, during non-crisis periods, the bank’s credit risk is positively related to its systemic risk exposure, indicating a baseline risk-taking proclivity. Results are robust to within-loan, GMM, and lead-lag analysis.
Keywords: Systemic Risk, Credit Risk, Public Guarantee, Syndicated Bank Loans, Manager Style, Risk-taking, Bank Governance
JEL Classification: G20, G21, G24, G28
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