Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153645
Authors: 
Fiordelisi, Franco
Marqués-Ibáñez, David
Molyneux, Phil
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1211
Abstract: 
We analyze the impact of efficiency on bank risk. We also consider whether bank capital has an effect on this relationship. We model the inter-temporal relationships among efficiency, capital and risk for a large sample of commercial banks operating in the European Union. We find that reductions in cost and revenue efficiencies increase banks’ future risks thus supporting the bad management and efficiency version of the moral hazard hypotheses. In contrast, bank efficiency improvements contribute to shore up bank capital levels. Our findings suggest that banks lagging behind in their efficiency levels might expect higher risk and subdued capital positions in the near future.
Subjects: 
banking risk
capital
Efficiency
JEL: 
G21
D24
C23
E44
Document Type: 
Working Paper

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