Population Aging and Bank Risk-Taking

39 Pages Posted: 5 Aug 2019 Last revised: 21 Nov 2020

See all articles by Sebastian Doerr

Sebastian Doerr

Bank for International Settlements

Gazi Kabas

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: November 10, 2020

Abstract

The population aged 65 and older will grow at an unprecedented pace over the next decade in most advanced economies. But what does population aging imply for banking? Exploiting geographic variation in the change in seniors across U.S. counties, we show that higher savings by seniors lead to a local increase in bank deposits. We then establish that banks more exposed to aging counties increase the supply of credit while relaxing their lending standards. Exposed banks increase loan-to-income ratios by more and have lower application rejection rates. They also see a sharper rise in nonperforming loans during the Great Recession. Risk-taking is more pronounced among banks with lower capital ratios, in more competitive markets or where banks operate no branches. These findings are robust to the inclusion of bank and county controls, granular fixed effects, and to an instrumental variable strategy. Our results suggest that population aging detrimentally affects financial stability.

Keywords: Demographics, population aging, risk-taking, financial stability

JEL Classification: G21, E51

Suggested Citation

Doerr, Sebastian and Kabas, Gazi and Ongena, Steven R. G., Population Aging and Bank Risk-Taking (November 10, 2020). Available at SSRN: https://ssrn.com/abstract=3430184 or http://dx.doi.org/10.2139/ssrn.3430184

Sebastian Doerr (Contact Author)

Bank for International Settlements ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

HOME PAGE: http://www.sdoerr.com

Gazi Kabas

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

HOME PAGE: http://https://sites.google.com/view/gazikabas/home

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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