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ABSTRACT
We empirically investigate the effects of government debt on banks’ risk-taking by using a dataset covering 10,122 banks located in 65 countries between 2009 and 2019. We find that a greater supply of government debt can increase risk-taking of banks. This positive relation is stronger for domestic government debt, or for banks with higher level of capitalization and loans to deposits.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1. In addition, the collateral and the balance sheets mechanisms have been evidenced by our empirical results (available on request).
Additional information
Funding
This work was supported by the National Natural Science Foundation of China [grant number 72073026]; the Ministry of Education of Humanities and Social Science Project [grant number 20YJA790031]; and the Fundamental Research Funds for the Central University in UIBE [grant number CXTD10-03].