Factors determining European bank risk

► There is evidence of a non-linear (i.e., “U-shaped”) relation between bank capital and bank risk. ► In the period following the creation of the Economic Monetary Union (EMU), we observe an increase in the bank risk sensitivity to both bank capital and off-balance sheet activities and a decrease in the sensitivity of bank risk to charter value. ► During the global financial crisis, the negative effect of both bank capital and charter bank on credit risk is more apparent.