Population Aging and Bank Risk-taking

52 Pages Posted: 5 Aug 2019 Last revised: 23 Oct 2022

See all articles by Sebastian Doerr

Sebastian Doerr

Bank for International Settlements

Gazi Kabas

Tilburg University - Department of Finance; 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; NTNU Business School; Centre for Economic Policy Research (CEPR)

Date Written: July 1, 2022

Abstract

What are the implications of an aging population for financial stability? To examine this question, we exploit geographic variation in aging across U.S. counties. We establish that banks with higher exposure to aging counties increase loan-to-income ratios, especially where they operate no branches. Laxer lending standards also lead to higher nonperforming loans during downturns, suggesting higher credit risk. Inspecting the mechanism shows that aging drives risk-taking through two contemporaneous channels: deposit inflows due to seniors' propensity to save in deposits; and depressed local investment opportunities due to seniors' lower credit demand. Banks thus look for riskier clients in no-branch counties.

Keywords: Risk-taking, financial stability, low interest rates, population aging, demographics.

JEL Classification: E51, G21.

Suggested Citation

Doerr, Sebastian and Kabas, Gazi and Ongena, Steven R. G., Population Aging and Bank Risk-taking (July 1, 2022). Swiss Finance Institute Research Paper No. 20-62, 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

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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