Size, Leverage, and Risk-Taking of Financial Institutions

We investigate the link between firm size and risk-taking among financial institutions during the period of 1998-2008 and make three contributions. First, size is positively correlated with risk-taking measures even when controlling for other observable firm characteristics. This is consistent with the notion that “too-big-to-fail” policies distort the risk incentives of financial institutions. Second, a simple decomposition of the primary risk...