Leung, W. S.  ORCID: https://orcid.org/0000-0002-0389-2126, Taylor, N. and Evans, K. P. ORCID: https://orcid.org/0000-0001-8854-2629
2015.
The determinants of bank risks: evidence from the recent financial crisis.
Journal of International Financial Markets, Institutions and Money
34
, pp. 277-293.
10.1016/j.intfin.2014.11.012
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Abstract
We investigate whether US bank holding company fundamental characteristics are related to bank risk over a period that covers the recent 2007-09 financial crisis. We extend prior studies to consider bank equity risk exposure to market-wide default risk, the structured finance market, and the asset-backed money market in a variance decomposition. Four important results emerge: (1) the risk in bank opaque assets is not accurately priced; (2) banks with lower earnings have higher risk; (3) a positive relationship between non-performing loans and bank risk increased threefold during the crisis and (4) banks with a larger buffer of Tier 1 capital have lower risk and lower exposure to shocks in market-wide default risk and the structured finance market in particular. These results highlight the importance to investors of studying fundamentals, while from a bank regulatory perspective, effective management of regulatory capital may manage risks arising from contagion stemming from structured finance markets and funding illiquidity.
| Item Type: | Article |
|---|---|
| Date Type: | Publication |
| Status: | Published |
| Schools: | Schools > Business (Including Economics) |
| Subjects: | H Social Sciences > HG Finance |
| Uncontrolled Keywords: | Bank holding companies; Bank equity risk; ABX index; Funding illiquidity risk. |
| Publisher: | Elsevier |
| ISSN: | 1042-4431 |
| Date of Acceptance: | 14 November 2014 |
| Last Modified: | 08 Jul 2025 10:15 |
| URI: | https://orca.cardiff.ac.uk/id/eprint/67563 |
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