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What Influences Banks' Choice of Risk Management Tools?
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This paper investigates the factors influencing banks’ decision to engage in advanced risk
management, from both a theoretical and an empirical perspective. In recent decades,
credit risk management in banks has become highly sophisticated and banks have become
more active and advanced in the management of credit risks. We identify two driving
factors for risk management: bank competition and sector concentration in the loan
market. We find empirical support for our hypotheses, using a unique data set of 249
German banks; parts of the data set are hand-collected. Bank competition pushes banks to
implement advanced risk management. Sector concentration in the loan market promotes
credit portfolio modeling, but inhibits credit risk transfer.
Keywords: banking, risk management, credit risk, credit portfolio modeling, credit risk
transfer
Dilek Bülbül, Hendrik Hakenes and Claudia Lambert - Personal Name
NONE
Management
English
1-57
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