Population aging and bank risk-taking

Sebastian Doerr, Gazi Kabaș, S.R.G. Ongena*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

2 Citations (Scopus)

Abstract

What are the implications of an aging population for financial stability? To examine this question, we exploit geographic variation in aging across U.S. counties. We establish that banks with higher exposure to aging counties increase loan-to-income ratios. Laxer lending standards lead to higher nonperforming loans during downturns, suggesting higher credit risk. Inspecting the mechanism shows that aging drives risk-taking through two contemporaneous channels: deposit inflows due to seniors’ propensity to save in deposits; and depressed local investment opportunities due to seniors’ lower credit demand. Banks thus look for riskier clients, especially in counties where they operate no branches.
Original languageEnglish
Pages (from-to)3037-3061
Number of pages25
JournalJournal of Financial and Quantitative Analysis
Volume59
Issue number7
DOIs
Publication statusPublished - Nov 2024

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