Previous research has assessed factors that influence ex post measures of bank risk. While these ex post measures are useful, they do not reflect the market's perception of risk at a given point in time. Our objective is to determine factors that influence ex ante risk of depository institutions. We find that the amount of real estate owned and real estate loans are positively related to E x ante risk. Capital adequacy and non-interest income levels are inversely related to ex ante risk. Furthermore, the level of commitments (an off-balance sheet item) is positively related to the ex ante risk of banks.
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Madura et al. (1994) studied this question.
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