Micro-level Evidences of Moral Hazard in the European Financial Institutions

Abstract

Abstract:This article examines the evidences of moral hazard in the risk taking behavior of the 500 banks in Central Europe, the Baltics and Balkan region. We test the evidences of moral hazard in empirical relationships between shareholders, bank managers and regulatory restraints. The results generally support the theoretical arguments, though we cannot find explicit evidences of moral hazard in risk taking behavior of the bank managers of the region. Our findings suggest that the capital requirements and regulatory concerns along with performance efficiency exhibit the strongest impact on the level of risk taking.