Capital market tests of risk exposure of loan sales activities of large U.S. commercial banks.

From: Quarterly Journal of Business and Economics | Date: January 1, 1993| Author: | Copyright information

The effect of risk exposure of banks in the sale of loans by large US commercial banks are examined. Results of five capital market tests indicate that off-balance sheet loan sales activities have no effect on bank systematic risk, equity risk and Ronn-Verna implied asset risk. Loan sales therefore contribute to the reduction of risk and overall diversification of the bank asset portfolio. Strict government regulation of loan sales appear then to be counterproductive.

Introduction

This paper deals with the risk exposure of loan sales (LNPART) by large commercial banks in the United ...

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