Cardiff University | Prifysgol Caerdydd ORCA
Online Research @ Cardiff 
WelshClear Cookie - decide language by browser settings

The determinants of bank risks: evidence from the recent financial crisis

Leung, W. S., Taylor, N. and Evans, K. P. 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

[img]
Preview
PDF - Submitted Pre-Print Version
Download (245kB) | Preview

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: 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: 07 Oct 2021 00:40
URI: http://orca.cardiff.ac.uk/id/eprint/67563

Citation Data

Cited 10 times in Scopus. View in Scopus. Powered By Scopus® Data

Actions (repository staff only)

Edit Item Edit Item