Risk aversion and bank loan pricing

How much of the heterogeneity in bank loan pricing is explained by disparities in banks’ attitude towards risk? The answer to this question is not simple because there are only very weak proxies for gauging the degree of a bank’s risk aversion. We handle this constraint by means of a novel econometr...

Full description

Saved in:
Bibliographic Details
Published inEconomics letters Vol. 200; p. 109723
Main Authors Camba-Mendez, Gonzalo, Mongelli, Francesco Paolo
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.03.2021
Elsevier Science Ltd
Subjects
Bank loan pricing
Bank loans
Banks
Econometrics
Risk
Risk aversion
Risk aversion
E58
Bank loan pricing
C23
G21
Online AccessGet full text

Cover

More Information
Summary:How much of the heterogeneity in bank loan pricing is explained by disparities in banks’ attitude towards risk? The answer to this question is not simple because there are only very weak proxies for gauging the degree of a bank’s risk aversion. We handle this constraint by means of a novel econometric approach that allows us to disentangle the amount of risk faced by banks and the price they charge for holding that risk. Some of our results are aligned with previous studies and confirm that disparities in market power, banks’ funding costs, and banks’ funding risks are reflected in bank lending rates. However, our new modelling framework reveals that the heterogeneity in bank lending rates is also a reflection of the non-negligible disparities in banks’ risk aversion.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2020.109723