Financial Reform and Banking Crises

We examine the impact of various dimensions of financial reform on the likelihood of systemic and non-systemic banking crises. Using new financial reform measures for a large sample of developing and developed countries for the period 1973 to 2002, our multivariate probit modeling results suggest that conditional on adequate banking supervision, certain dimensions of financial reform reduce the likelihood of systemic crises. We also show that after a country has reformed, the introduction of further reforms becomes easier and leads to more stable financial systems. We also find some evidence that the likelihood of non-systemic crisis increases after financial reform.banking crises, financial reform, financial fragility

Growth and Earnings Persistence in Banking Firms: A Dynamic Panel Investigation

This paper investigates (i) whether growth and profitability persist in banking firms, (ii) whether the level and volatility of growth and profitability are bank-size dependent, and (iii) the relationship between growth and profitability of a bank. Using a dynamic panel model estimated by GMM for a mixed sample of more than 1500 banks from 65 countries, we find no evidence of persistence in bank growth. However, our findings suggest significant persistence in bank profitability. Moreover, our results show that the growth and profitability dynamics of banks based in OECD countries differ from those of banks in non-OECD countries.bank size, bank earnings, earnings volatility, bank risk, Gibrat’s law

The demand for eurozone stocks and bonds in a time-varying asset allocation framework

© 2019, © 2019 Informa UK Limited, trading as Taylor & Francis Group. This paper analyzes the short and long-run demand for traditional financial asset classes in eleven founding eurozone members. Our sample period starts from the introduction of euro till 2017. We calculate the welfare losses stemming from ignoring the demand for domestic and eurozone equities and bonds, for various levels of risk aversion. Our results show that the bonds of eurozone countries are, in general, desirable for short-run only. However, in Ireland, Portugal and Spain the bonds are desirable for both short-run and long-run investment horizons. Stocks exhibit both short-run and long-run desirability for all countries except Greece. The Greek stocks are desirable for short- run only

Pro-Cyclical Effect of Sovereign Rating Changes on Stock Returns: A Fact or Factoid?

© 2018, © 2018 Informa UK Limited, trading as Taylor & Francis Group. This article examines the effect of changes in sovereign credit ratings and their outlook on the stock market returns of European countries at different phases of business cycle. Using standard four-factor model, it records a significant average marginal effect of credit rating announcements on stock market returns. Both magnitude and significance of the effect vary with business cycle and across announcement types. However, we do not find evidence of pro-cyclical effect of sovereign rating and outlook changes on stock returns. Our results show that stock markets react more negatively to rating downgrades in recovery phases and more positively to rating upgrades in contractionary period. Both results are statistically significant and robust to various sensitivity tests

Panel studies on bank risks and crises

This thesis focuses upon systemic and bank-specific factors that play a crucial role in bank performance and risk management. We show that financial liberalization reduces the likelihood of the occurrence of systemic banking crises, conditional on the quality of supervisory environment. We also show that financial crises affect the earnings volatility of small and large banking firms differently. Earnings volatility also depends on market concentration. Because of their asset diversification, large banks have better ability to withstand financial crises. Moreover, when supervisory control is weak in the banking firms, ownership concentration can be an alternate mechanism for the optimal risk taking of banks.

The Conditional Effects of Market Power on Bank Risk--Cross-Country Evidence

We investigate the relationship between market power and risk for a large panel of banks worldwide. Loan and deposit market power are measured separately at bank-year level, and the risk effect of market power is conditioned on several factors predicted by theory. Both loan and deposit market power have a stable, monotonically negative effect on risk, irrespective of risk measure. The effect is larger for asset risk, and is independent of charter value and capital ratios. The effect on default risk tends to decrease in the quality of banking regulation, whereas the conditioning effects of deposit insurance protection are mixed