September 27, 2000
A. Sinan Cebenoyan and Philip E. Strahan
ABSTRACT
We test how active management of bank credit risk exposure affects capital structure, capital budgeting and profits.
We find that banks that rebalance their C&I loan portfolio exposures by both buying and selling loans hold
less capital and lower levels of liquid assets than other banks; they also lend more to businesses, both as a percentage
of total assets and as a percentage of their overall lending, and they enjoy higher profits. The results hold controlling
for bank size and holding company affiliation and are robust over time. We conclude that increasingly sophisticated
risk management practices in banking are likely to improve the availability of bank credit.
Subject: Banking
Classification: Empirical
A. Sinan Cebenoyan
Institution: Stern School of Business, New York University
Email: acebenoy@stern.nyu.edu
Telephone: (212) 998-0426
Homepage: http://www.stern.nyu.edu/~acebenoy/
Philip E. Strahan
Institution: Federal Reserve Bank of New York and Sloan School of Management
Email: pstrahan@mit.edu
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