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Population Aging and Bank Risk-Taking

Published online by Cambridge University Press:  04 September 2023

Sebastian Doerr ,
Gazi Kabaş  and
Steven Ongena Open the ORCID record for Steven Ongena [Opens in a new window]
Sebastian Doerr
Affiliation:
Bank for International Settlements Monetary and Economic Department [email protected]
Gazi Kabaş
Affiliation:
Tilburg University Department of Finance [email protected]
Steven Ongena*
Affiliation:
University of Zurich Department of Banking and Finance, Swiss Finance Institute, KU Leuven, NTNU Business School, and CEPR
*
[email protected] (corresponding author)
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Abstract

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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 7 , November 2024 , pp. 3037 - 3061
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Giovanni Dell’Ariccia (the referee) and Jarrad Harford (the editor), our discussants Bo Becker, Robin Greenwood, Andrew Mackinlay, George Pennacchi, Romina Ruprecht, Neeltje van Horen, and Jinyuan Zhang, as well as Adrien Auclert, Andreas Barth, Martin Brown, Tabea Bucher-Koenen, Andreas Fuster, Emilia Garcia-Appendini, Jose Jorge, Oguzhan Karakas, Luca Mazzone, Kasper Roszbach, and Simon Rother for comments. We also thank participants at the 2019 American Finance Association Annual Conference, 2022 Financial Intermediation Research Society Conference, 2022 Western Finance Association Meeting, 2022 FDIC 20th Annual Bank Research Conference, 2019 JFI-Nova SBE Conference on Financial Intermediation and Corporate Finance, 2021 Norges Bank-CEPR Workshop on Frontier Research in Banking, 2021 ZEW Conference on Ageing and Financial Markets, and the 2021 Annual Meeting of the Swiss Society for Financial Market Research. Kabaş and Ongena gratefully acknowledge financial support from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation program ERC ADG 2016 (Grant No. 740272: lending). The views expressed here are those of the authors only, and not necessarily those of the Bank for International Settlements.

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