Traditional theory suggests that higher bank profitability (or franchise value) dissuades bank risk-taking. We … highlight an opposite effect: higher profitability loosens bank borrowing constraints. This enables profitable banks to take … risk on a larger scale, inducing risk-taking. This effect is more pronounced when bank leverage constraints are looser, or …

concerned about being induced to finance bad risk projects when conditions deteriorate. A monopoly bank provides the socially … schlechten Projekte zu finanzieren. Eine monopolistische Bank leistet die sozial-optimale Auswahl guter Risiken, aber die …

profitfunction. Using the distance function to compute banks’ profitability, we take the distance to the frontier of best practices …

sovereign debt exposures and the implications of sovereign exposures for bank risk. Our main findings are as follows. First … impact of sovereign bond holdings on bank risk. This result could indicate the widespread absence of marking-to-market for … sovereign bond holdings at the onset of the sovereign debt crisis in Europe. …