Abstract
We conduct a comprehensive analysis using data from 9,724 commercial banks across 97 countries from 2002 to 2022 to investigate the impact of banks’ non-deposit liabilities on their risk-taking. Our findings reveal that an increase in the proportion of non-deposit liabilities triggers amplified bank risk-taking. Heterogeneity analysis indicates that the positive impact of non-deposit liabilities on bank risk-taking is more pronounced in banks with high reserves and high core tier 1 ratios. During periods of expansionary monetary policy, banks exhibit greater risk-taking in response to increased non-deposit liabilities. Moreover, we ascertain that the expansion in non-deposit liabilities can erode bank profitability by boosting risk-taking.
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