Bank connectedness and excessive risk-taking: Some cross-country evidence

Abstract

We investigate whether the connectedness of banks shapes their incentive to take on excessive risk, using panel data from more than 400 public banks in 19 economies during the period of 2000–2018. We find supportive evidence that banks’ excessive risk-taking is significantly associated with their connectedness and the impact of banks’ directional connectedness varies. A higher outward connectedness significantly fuels banks’ incentive to take excessive risk, while a higher inward connectedness has a countervailing effect