Download or read book Essays in Banking and Systemic Risk written by Maurice Anthony Ewing and published by . This book was released on 1998 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Banking and Finance written by Gang Dong and published by . This book was released on 2012 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation includes three essays. The first essay identifies the determinants of bank's risk contribution to systemic risk, and documents that banks with higher non-interest income (noncore activities like investment banking, venture capital and trading activities) have a higher contribution to systemic risk than traditional banking (deposit taking and lending). After decomposing total non-interest income into two components, trading income and investment banking and venture capital income, we find that both components are roughly equally related to systemic risk. These results are robust to endogeneity concerns when we use a difference-in-difference approach with the Lehman bankruptcy proxying for an exogenous shock. We also find that banks with higher trading income one-year prior to the recession earned lower returns during the recession period. No such significant effect was found for investment banking and venture capital income. The second essay analyzes the effect of mortgage securitization on the real economy and housing market. I estimate the dynamic response of housing risk and real GDP to shocks of mortgage securitization and banks' ownership of mortgage-backed security (MBS), and test three hypotheses suggested in the extant literature. Using structural vector autoregression (SVAR) methodology and cross-sectional analysis, I find that securitization reduces housing risk by completing the market. Interestingly, housing risk increases when commercial banks' ownership of MBS increases. This positive relationship is inconsistent with the agency view of securitization but is consistent with the neglected risk view of mortgage securitization (Gennaioli, Shleifer, and Vishny 2011). The causal inference is drawn from a quasi-experimental design using housing data of bordering CBSA regions in neighboring states with and without the passing of anti-predatory lending laws. The third essay identifies the passing of the Patient Protection and Affordable Care Act (PPACA) as an exogenous shock and uses the event study method to estimate the stock market's reaction in terms of asset price changes in the health care sector. The stock market appears to view the passing of PPACA as good news to the home care and specialty outpatient services but bad news to the medical instrument and health insurance industries. This might suggest that the existing institutional structure of the insurance industry is biased against comprehensive health, and most growth opportunities exist in the home care and specialty outpatient services. Furthermore, the magnitude of the abnormal return is relatively larger for firms with higher profit and R & D investment, but smaller for firms held by healthcare-specialized institutional investors, which is consistent with the literature that price changes are partially due to information revelation efforts by sophisticated institutional investors.

Download or read book Essays in Financial Systemic Risk written by Hieu Vu Dang and published by . This book was released on 2020 with total page 139 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this dissertation, I study the financial systemic risk from firm-level perspectives. Chapter 1 investigates a breakdown of the total financial system risk into individual contributors and sources. Chapter 2 studies a theoretical model about the active balance sheet management of individual bank in securitization. Chapter 3 and 4 present empirical evidence about securitization asset choices of banks when they face different constraints. Chapter 5 provides a brief summary of findings in this dissertation. In chapter 1, I propose a novel systemic importance (SI) index that tracks the contribution of a financial institution to the total financial system risk. That risk measure can be decomposed into idiosyncratic and spillover risk contribution to further study the risk characteristics of each firm. Using equity return data from 1965 to 2018, I find two important results. First, the spillover risk can account for approximately 80% of the aggregate financial system risk, which emphasizes the importance of contagion risk as a major amplification mechanism of shocks during a systemic event. Second, a portfolio of the top 20 most systemically important financial institutions (SIFIs), ranked by SI index, earns a significantly lower risk-adjusted return than their counterparts. This substantial equity funding cost advantage of approximately 4% per year on average implies that the ex-ante implicit government guarantee for the “too-important-to-fail” is priced by the market. In chapter 2, I develop a theoretical model that features two benefits of securitization. First, banks can reduce idiosyncratic risks and enhance risk-absorbing capacity by converting a fraction of their risky investments into securitized assets. Second, securitized assets require less regulatory capital, helping banks obtain a higher leverage without breaking the regulation. This chapter studies effects of the two motives above, namely risk-transferring and regulatory arbitrage, on bank portfolio choices. My analytical results predict that banks would securitize safer loans and retain only higher-risk, higher-return assets that justify their regulatory capital cost. In chapter 3, I analyze new data points in the recently revamped HMDA data to examine mortgage securitization decision choices and motives of all non-exempt banks in the US. Combining with the bank-level data from Call Reports, I find that capital-constrained banks retain riskier loans and involve more in the securitization market to optimize return on capital and keep regulatory ratios in control. On the other hand, risk-constrained banks use securitization mainly for the purpose of risk and liquidity improvement. When putting together, risk transferring seems to dominate regulatory arbitrage as the main reason banks engage in securitization. Chapter 4 serves as a complementary case study to Chapter 3, in which I investigate the mortgage loan approval and securitization decision of PNC Bank. There are three interesting findings: First, the bank uses third-party automated underwriting systems to originate over 90% of its conforming residential mortgage loans and then sell more than 70% of them. Second, the bank retains safer loans on balance sheet, which emphasizes the role of securitization as a risk-transferring mechanism. Third, compared to a non-depository financial institution (shadow bank), a traditional commercial bank like PNC behaves differently and shows a clear presence of active securitization management. With a stable deposit funding channel, PNC is able to originate jumbo loans at a higher approval rate, retain more loans on balance sheet, and selectively choose to sell off riskier loans.

Download or read book Essays on Risk and Uncertainty in Economics and Finance written by Jorge Mario Uribe Gil and published by Ed. Universidad de Cantabria. This book was released on 2022-11-22 with total page 212 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book adds to the resolution of two problems in finance and economics: i) what is macro-financial uncertainty? : How to measure it? How is it different from risk? How important is it for the financial markets? And ii) what sort of asymmetries underlie financial risk and uncertainty propagation across the global financial markets? That is, how risk and uncertainty change according to factors such as market states or market participants. In Chapter 2, which is entitled “Momentum Uncertainties”, the relationship between macroeconomic uncertainty and the abnormal returns of a momentum trading strategy in the stock market is studies. We show that high levels of uncertainty in the economy impact negatively and significantly the returns of a portfolio of stocks that consist of buying past winners and selling past losers. High uncertainty reduces below zero the abnormal returns of momentum, extinguishes the Sharpe ratio of the momentum strategy, while increases the probability of momentum crashes both by increasing the skewness and the kurtosis of the momentum return distribution. Uncertainty acts as an economic regime that underlies abrupt changes over time of the returns generated by momentum strategies. In Chapter 3, “Measuring Uncertainty in the Stock Market”, a new index for measuring stock market uncertainty on a daily basis is proposed. The index considers the inherent differentiation between uncertainty and the common variations between the series. The second contribution of chapter 3 is to show how this financial uncertainty index can also serve as an indicator of macroeconomic uncertainty. Finally, the dynamic relationship between uncertainty and the series of consumption, interest rates, production and stock market prices, among others, is analized. In chapter 4: “Uncertainty, Systemic Shocks and the Global Banking Sector: Has the Crisis Modified their Relationship?” we explore the stability of systemic risk and uncertainty propagation among financial institutions in the global economy, and show that it has remained stable over the last decade. Additionally, a new simple tool for measuring the resilience of financial institutions to these systemic shocks is provided. We examine the characteristics and stability of systemic risk and uncertainty, in relation to the dynamics of the banking sector stock returns. This sort of evidence is supportive of past claims, made in the field of macroeconomics, which hold that during the global financial crisis the financial system may have faced stronger versions of traditional shocks rather than a new type of shock. In chapter 5, “Currency downside risk, liquidity, and financial stability”, downside risk propagation across global currency markets and the ways in which it is related to liquidity is analyzed. Two primary contributions to the literature follow. First, tail-spillovers between currencies in the global FX market are estimated. This index is easy to build and does not require intraday data, which constitutes an important advantage. Second, we show that turnover is related to risk spillovers in global currency markets. Chapter 6 is entitled “Spillovers from the United States to Latin American and G7 Stock Markets: A VAR-Quantile Analysis”. This chapter contributes to the studies of contagion, market integration and cross-border spillovers during both regular and crisis episodes by carrying out a multivariate quantile analysis. It focuses on Latin American stock markets, which have been characterized by a highly positive dynamic in recent decades, in terms of market capitalization and liquidity ratios, after a far-reaching process of market liberalization and reforms to pension funds across the continent during the 80s and 90s. We document smaller dependences between the LA markets and the US market than those between the US and the developed economies, especially in the highest and lowest quantiles.

Download or read book Essays on Systemic Risk written by and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter 1: Introduction Chapter 2: Systemic Risk: Is the Banking Sector Special? In this paper we empirically investigate the degree of systemic risk in the banking sector versus other industry sectors in the United States and in Germany. We characterize the systemic risk in each sector by the lower tail dependence of stock returns. Our study differs from the existing literature in three aspects. First, we compare the degree of systemic risk in the banking sector with other sectors in the economy. Second, we analyze how the systemic risk depends on the state of the economy. Third, we address the problem of systemic risk in an international context by comparing the US and the German banking system. Our study shows in most cases considered that the systemic risk of the banking sector is significantly larger than in all other sectors. Especially it differs from the systemic risk in the insurance sector, the second strongly regulated financial subsystem. Moreover, the degree of systemic risk is higher under adverse market conditions. Finally, we find that the banking sector in Germany shows a lower systemic risk than the US banking sector. Chapter 3: Intra-Industry Contagion Effects of Earnings Surprises in the Banking Sector In this paper we investigate whether contagion is present in the banking sector by analyzing how banks are affected by negative earnings surprises from their competitors. The banking sector is of crucial importance for the economy and, thus, highly regulated on an individual bank level. However, a high degree of contagion risk should call for a regulation of the financial network rather than solely regulating on an individual level. To be able to make a judgment about the magnitude of possible contagion effects we compare the results of the banking sector with the results of the non-banking industries. We find that earnings surprises cause significant contagion in the banking sector. In contrast, we do not find this effect in the non-banking sector.

Download or read book Essays on Financial Networks Systemic Risk and Policy written by Peng Sui and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This essay consists of three chapters. Chapter one extends Allen and Gale's (2000) model to a core-periphery network structure. We identify that the financial contagion in core-periphery structure is different to Allen and Gale (2000) in two aspects. Firstly, the shocks to the periphery bank and to the core bank have different contagion processes. Secondly, contagion not only depends on the amount of claims a bank has on a failed bank, but also on the number of links the failed neighbour has. Chapter two studies the policy effect on financial network formation when the government has time-inconsistency problem on bailing out systemically important bank. We show that if interbank deposits are guaranteed, the equilibrium network structure is different from the one under market discipline. We show that under market discipline individual banks can collectively increase the component size using interbank intermediation in order to increases the severity of systemic risk and hence trigger the bailout. If interbank intermediation is costly the equilibrium network has core-periphery structure. Chapter three follows Acharya and Yorulmazer's (2007) study of the "too many to fail" problem in a two-bank model. They argue that in order to reduce the social losses, the financial regulator finds it ex post optimal to bail out every troubled bank if they fail together, because the acquisition of liquidated assets by other investors result in a high misallocation cost. In contrast to their paper, we argue that there is no "too many to fail" bailout, unless banking capital is costly and market price sensitive. We argue that market price sensitive capital can induce banks herding and high social cost.

Download or read book Three Essays in Bank Systemic Risk written by Amir Hossein Khalilzadeh Naghneh and published by . This book was released on 2018 with total page 151 pages. Available in PDF, EPUB and Kindle. Book excerpt: Thèse. HEC. 2018

Download or read book Three Essays on Systemic Risk written by Sylvain Benoit and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Systemic risk has played a key role in the propagation of the last global financial crisis. A large number ofsystemic risk measures have been developed to quantify the contribution of a financial institution to thesystem-wide risk. However, numerous questions about their abilities to identify Systemically ImportantFinancial Institutions (SIFIs) have been raised since systemic risk has multiple facets, and some of themare difficult to gauge, such as the commonalities across financial institutions.The main goal of this dissertation in finance is thus (i) to propose an empirical solution to identifydomestic SIFIs, (ii) to compare theoretically and empirically different systemic risk measures, and (iii)to measure changes in banks' risk exposures.First, chapter 1 offers an adjustment of three market-based systemic risk measures, designed in a globalframework, to identify domestic SIFIs. Second, chapter 2 introduces a common framework in whichseveral systemic risk measures are expressed and compared. It is theoretically shown that those systemicrisk measures can be expressed as function of traditional risk measures. The empirical application confirmsthese findings and shows that these measures fall short in capturing the multifaceted nature of systemicrisk. Third, chapter 3 proposes the Factor Implied Risk Exposures (FIRE) methodology which breaksdown a change in risk disclosure into a market volatility component and a bank-specific risk exposurecomponent. This chapter empirically illustrates that changes in risk exposures are positively correlatedacross banks, which is consistent with banks exhibiting commonality in trading.

Download or read book Essays in Banking written by John Sedunov (III) and published by . This book was released on 2012 with total page 141 pages. Available in PDF, EPUB and Kindle. Book excerpt: Both chapters contribute to the finance literature. Chapter two adds to an emerging literature which studies the measurement of systemic risk exposure. Moreover, it contributes to the understanding of why certain financial institutions have greater exposures to systemic risk relative to their counterparts. Chapter three adds to the literature on bank technology, soft information lending, and bank hierarchy. It answers an open question in the banking literature by examining the effects of new technology on bank operations and organization.

Download or read book Essays on Systemic Risk Modelling and Its Impact on the Banking Sector written by Mathias Mandla Manguzvane and published by . This book was released on 2020 with total page 153 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book THREE ESSAYS ON THE IMPACT OF MONETARY POLICY TARGET INTEREST RATES ON BANK DISTRESS AND SYSTEMIC RISK written by Mustafa Akcay and published by . This book was released on 2018 with total page 223 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation topic is on the impact of changes in the monetary policy interest rate target on bank distress and systemic risk in the U.S. banking system. The financial crisis of 2007-2009 had devastating effects on the banking system worldwide. The feeble performance of financial institutions during the crisis heightened the necessity of understanding systemic risk exhibited the critical role of monitoring the banking system, and strongly necessitated quantification of the risks to which banks are exposed, for incorporation in policy formulation. In the aftermath of the crisis, US bank regulators focused on overhauling the then existing regulatory framework in order to provide comprehensive capital buffers against bank losses. In this context, the Basel Committee proposed in 2011, the Basel III framework in order to strengthen the regulatory capital structure as a buffer against bank losses. The reform under Basel III framework aimed at raising the quality and the quantity of regulatory capital base and enhancing the risk coverage of the capital structure. Separately, US bank regulators adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) to implement stress tests on systemically important bank holding companies (SIBs). Concerns about system-wide distress have broadened the debate on banking regulation towards a macro prudential approach. In this context, limiting bank risk and systemic risk has become a prolific research field at the crossroads of banking, macroeconomics, econometrics, and network theory over the last decade (Kuritzkes et al., 2005; Goodhart and Sergoviano, 2008; Geluk et al., 2009; Acharya et al., 2010, 2017; Tarashev et al., 2010; Huang et al., 2012; Browless and Engle, 2012, 2017 and Cummins, 2014). The European Central Bank (ECB) (2010) defines systemic risk as a risk of financial instability "so widespread that it impairs the functioning of a financial system to the point where economic growth and welfare suffer materially." While US bank regulators and policy-makers have moved to strengthen the regulatory framework in the post-crisis period in order to prevent another financial crisis, a growing recent line of research has suggested that there is a significant link between monetary policy and bank distress (Bernanke, Gertler and Gilchrist, 1999; Borio and Zhu, 2008; Gertler and Kiyotaki, 2010; Delis and Kouretas, 2010; Gertler and Karadi, 2011; Delis et al., 2017). In my research, I examine the link between the monetary policy and bank distress. In the first chapter, I investigate the impact of the federal funds rate (FFR) changes on the banking system distress between 2001 and 2013 within an unrestricted vector auto-regression model. The Fed used FFR as a primary policy tool before the financial crisis of 2007-2009, but focused on quantitative easing (QE) during the crisis and post-crisis periods when the FFR hit the zero bound. I use the Taylor rule rate (TRR, 1993) as an "implied policy rate", instead of the FFR, to account for the impact of QE on the economy. The base model of distress includes three macroeconomic indicators-real GDP growth, inflation, and TRR-and a systemic risk indicator (Expected capital shortfall (ES)). I consider two model extensions; (i) I include a measure of bank lending standards to account for the changes in the systemic risk due to credit tightening, (ii) I replace inflation with house price growth rate to see if the results remain robust. Three main results can be drawn. First, the impulse response functions (IRFs) show that raising the monetary policy rate contributed to insolvency problems for the U.S. banks, with a one percentage point increase in the rate raising the banking systemic stress by 1.6 and 0.8 percentage points, respectively, in the base and extend models. Second, variance decomposition (VDs) analysis shows that up to ten percent of error variation in systemic risk indicator can be attributed to innovations in the policy rate in the extended model. Third, my results supplement the view that policy rate hikes led to housing bubble burst and contributed to the financial crisis of 2007-2009. This is an example for how monetary policy-making gets more complex and must be conducted with utmost caution if there is a bubble in the economy. In the second chapter, I examine the prevalence and asymmetry of the effects on bank distress from positive and negative shocks to the target fed fund rate (FFR) in the period leading to the financial crisis (2001-2008). A panel model with three blocks of control variables is used. The blocks include: positive/negative FFR shocks, macroeconomic drivers, and bank balance sheet indicators. A distress indicator similar to Texas Ratio is used to proxy distress. Shocks to FFR are defined along the lines suggested by Morgan (1993). Three main results are obtained. First, FFR shocks, either positive or negative, raise bank distress over the following year. Second, the magnitudes of the effects from positive and negative shocks are unequal (asymmetric); a 100 bps positive (negative) shock raises the bank distress indicator (scaled from 0 to 1) by 9 bps (3 bps) over the next year. Put differently, after a 100 bps positive (negative) shock, the probability of bankruptcy rises from 10% to 19% (13%). Third, expanding operations into non-banking activities by FHCs does not benefit them in terms of distress due to unanticipated changes in the FFR as FFR shocks (positive or negative) create similar levels of distress for BHCs and FHCs. In the third chapter, I explore the systemic risk contributions of U.S. bank holding companies (BHCs) from 2001 to 2015 by using the expected shortfall approach. Developed by analogy with the component expected shortfall concept, I decompose the aggregate systemic risk, as measured by expected shortfall, into several subgroups of banks by using publicly available balance sheet data to define the probability of bank default. The risk measure, thus, encompasses the entire universe of banks. I find that concentration of assets in a smaller number of larger banks raises systemic risk. The systemic risk contribution of banks designated as SIFIs increased sharply during the financial crisis and reached 74% at the end of 2015. Two-thirds of this risk contribution is attributed to the four largest banks in the U.S.: Bank of America, JP Morgan Chase, Citigroup and Wells Fargo. I also find that diversifying business operations by expanding into nontraditional operations does not reduce the systemic risk contribution of financial holding companies (FHCs). In general, FHCs are individually riskier than BHCs despite their more diversified basket of products; FHCs contribute a disproportionate amount to systemic risk given their size, all else being equal. I believe monetary policy-making in the last decade carries many lessons for policy makers. Particularly, the link between the monetary policy target rate and bank distress and systemic risk is an interesting topic by all accounts due to its implications and challenges (explained in more detail in first and second chapters). The literature studying the relation between bank distress and monetary policy is fairly small but developing fast. The models I investigate in my work are simple in many ways but they may serve as a basis for more sophisticated models.

Download or read book Essays on Financial Stability written by John F. Chant and published by . This book was released on 2003 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Managing Risk in the Financial System written by John Raymond LaBrosse and published by Edward Elgar Publishing. This book was released on 2011-01-01 with total page 529 pages. Available in PDF, EPUB and Kindle. Book excerpt: Incisive, authoritative and thoughtful, this important and timely collection of papers exploring the unresolved issues left by the recent global financial turmoil, will undoubtedly shape the policy responses to come. Interdisciplinary in approach and wide-ranging in jurisdictional scope, it draws together influential commentators, practitioners and regulators, to create a new milestone in the search for the fundamentals of a more stable global financial system.? - Eva Lomnicka, King?s College London, UK ?This book contains a large number of chapters, nearly 30 in all, by acknowledged experts on various aspects of the recent financial crisis. Whichever aspect of this crisis that may interest you, such as bank taxes, deposit insurance, TBTF and how to respond, cross-border issues, and many, many others, you will find chapters that are both authoritative and stimulating in this collection. The editors are to be congratulated not only in their selection of authors but also in the speed with which they have taken them from conference presentation to book chapter.? - Charles Goodhart, London School of Economics, UK Managing Risk in the Financial System makes important and timely contributions to our knowledge and understanding of banking law, financial institution restructuring and related considerations, through the production of an innovative, international and interdisciplinary set of contributions which link law and policy issues surrounding systemic risk and crisis management. The recent financial crisis has exposed both the banking industry and financial system safety net players in many countries to a considerable level of distress as well as economic and reputational damage. These circumstances have heightened the need for policymakers to consider remedial measures under a broad umbrella that encompass inter alia prompt corrective actions, early closure of distressed entities, deposit insurance, bail-outs, state-aid, bank resolution and restructuring techniques. These essays provide an important contribution to research in this area, at a crucial time in the debate around the future financial industry. Contributors

Download or read book Essays in Financial Economics written by Rita Biswas and published by Emerald Group Publishing. This book was released on 2019-10-24 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume, dedicated to John W. Kensinger, explores a variety of topics in financial economics, including firm growth, investment risks, and the profitability of the banking industry. With its global perspective, Essays in Financial Economics is a valuable addition to the bookshelf of any researcher in finance.

Download or read book Essays on Bank Runs Contagion and Systemic Risk written by Tanju Yorulmazer and published by . This book was released on 2003 with total page 223 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Summary of the Thesis Essays on Financial Stability and Corporate Finance written by Mónica López-Puertas Lamy and published by Ed. Universidad de Cantabria. This book was released on 2014-01-20 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: El principal objetivo de este trabajo consiste en analizar los efectos que la estructura de propiedad bancaria tiene sobre la toma de riesgos, a nivel microeconómico y sobre el riesgo sistémico, a nivel macroeconómico. Para ello se desarrolla un modelo de competencia oligopolística y se analizan las propiedades del equilibrio de mercado en términos de beneficios, cuota de mercado y micro y macro estabilidad financiera cuando un banco comercial, maximizador de beneficios, compite contra un banco no orientado hacia los beneficios (stakeholder bank). Los resultados teóricos son validados empíricamente usando datos bancarios de 72 países durante el periodo 1997-2007. Concretamente se muestra que a) los stakeholder banks son menos arriesgados que los bancos comerciales, b) cualquier banco es más arriesgado cuando compite contra un stakeholder bank en lugar de contra un banco comercial, c) a nivel sistémico la presencia de stakeholder banks aumenta la estabilidad financiera, d) el efecto de la regulación bancaria y de la competencia en la toma de riesgos depende de la estructura de propiedad del banco, e) la concentración accionarial incrementa el riesgo bancario, f) el diseño de los incentivos gerenciales tiene un efecto muy significativo sobre la toma de riesgos bancarios.

Download or read book The Future of Financial Systems and Services written by Edward P.M. Gardener and published by Springer. This book was released on 2015-12-22 with total page 422 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume of essays comprises a systematic collection of views from scholars and practitioners on the future of financial systems and services and reflects the fact that the financial industry worldwide is involved in a major restructuring process.