What Determines Risk-Taking Behavior for Organization for Economic Co-operation and Development’s Commercial Banks

Abstract

The research examines the influence of bank-level and macroeconomic factors for risk-taking
behavior for Organisation for Economic Co-operation and Development (OECD) commercial
banks as an excessive level of bank risk hampers the long-term and sustainable growth of banks.
For this purpose, we have taken a large sample of 7616 banks that are actively operating in 36
member countries from 2010 to 2017 by incorporating some macroeconomic variables as
instruments and industry control variables to extend previous findings. Our study applies the
ordinary least squares (OLS), panel corrected the standard error (PCSE), models.The
endogeneity issue, often neglected in previous studies, has also been addressed using the one-step
difference general method of moments (GMM). Results obtained by usage of instrumental
variables on impaired loans are highly dependable. The variables as management efficiency,,
negatively affect risk-taking behavior; however, capitalization significantly increase bank risk.
GDP improves economic conditions by causing an instant reduction in the impaired loan
portfolio of commercial banks. These findings are relevant to the background of trickledown
effects of the global financial crises and have certain policy implications in developed and
emerging countries of the economic block