A study of contagion in global and local banking industries

This thesis investigates contagion risk for the global and local banking environment using three different distance to risk measures (distance to default - DD, distance to capital – DC and distance to inefficiency- DI). In order to achieve this goal, the research has been divided into three parts (each will have its own chapter) to study the contagion effect in the global and local market. In the first part (chapter 4), the thesis investigates the contagion effect among the top 20 countries of the world. The sample consists of 91 banks from 20 countries across the globe including all G8 and BRICS countries. A list of all these countries and their corresponding banks is included later. The sample also includes all the GSIB (Global systematically important banks) banks excluding Group BPCE of France (given that Group BPCE originated in year 2009 by merging Caisse nationale des caisses d'épargne and Banque fédérale des banques populaires). In the second part (chapter 5), the thesis examines the local contagion by studying the spill over among top 15 US states. The sample consist of four of the largest banks from each of the sample 15 US state. A list of these banks is attached in the sample description. In chapter 6, the thesis performs a spill over analysis using DD, DI and DC. In order to do so, the thesis has measured the systemic risk using distance to default, distance to inefficiency and distance to capital, which are introduced by the option pricing theory (Merton, 1976). These distance to risk methods are defined as the theoretical difference between the entity’s current and breakeven risk position (Distance to default is the difference between the current and default position; Distance to inefficiency is the difference between the current and inefficient position and distance to capital is the difference between the current and default capital threshold position). Any position lower then this distance to risk measures is considered undesirable for the entity. The study has calculated 2606 daily observations for each of the different distance to risk measures for each bank in the sample for approximately 10 financial years from 2006 to 2015. Then the thesis compute the probability of experiencing extreme shocks in these distance measures of contagion risk using extreme value threshold. This research categorizes these extreme shocks into sub groups for the first two parts and keep the extreme shock unchanged for the last part and examine the contagion risk ascending from the movement of these extreme systemic shocks all through the US and global baking environment using multinomial logistic regression model (MLM). Finally, in chapter 7, the thesis discussed a possible risk management framework based on findings of the previous chapters. It has taken all the banks and divided them into 4 tiers based on their spill over impact. The study suggests that any bank in the 1st tier of the short term or long-term contagion capacity table should be referred to a high degree of regulatory control to enforce not only better capital governance or liquidity requirement but to also enforce overall financial governance as they have a huge impact on the other financial institutions. For the banks in the second and third tier, the authority may adopt a more gradually enforceable governance control in lieu with the current practice and the last tier can do their business in the current regulation, as they pose no real threat to the other peers. At the end, the study also suggests a new generic risk management framework for financial institutions

Systemic risk contagion within US states

Purpose: This study aims to examine the systemic risk contagion in banks from 15 US states using extreme shocks in their distance to risk. Design/methodology/approach: The authors contemplate a model that inputs co-exceedances in the base US states’ banking sector as the dependent variable and the co-exceedances in other states’ banking sector (along with other underlying variables of a banking system) as the explanatory variables. Findings: The authors find smaller states transmit and receive more systemic shocks than their larger counterparts and larger states exhibit a better shock-resisting capacity than their smaller counterparts. The authors also find that bigger shocks are more contagious than the smaller shocks. Originality/value: This will be the first paper that will investigate the inner linkage of US states’ banking network using three different distance to risk methods, thus providing timely guidance for regulators

A note on contemporary literature of risk and risk management in banking

Risk has been defined by numerous of forms by the current researchers when relating it to financial services. In this paper, we investigate different definitions of risk and risk management using qualitative analysis given by the previous authors in the past decades and how the financial institutions are using them to manage their risk. A financial institution risk management is not only dependent on how the shocks are spreading or spilling over to other institutions, but it also depends on how much of the risk can we decrease in the first place by using internal control mechanism. Keeping these in mind, our discussion from the qualitative analysis is used to create a modern framework for internal risk management for individual financial institutions

Banking sector of Bangladesh : how to go green

The main objective of the paper is to explore the potential green banking initiatives, which can be taken by the banking sector of Bangladesh to ascertain sustainable development. To do this remarkable job, current working initiatives throughout the world have shown here, which can give guidelines for green banking practice in Bangladesh. Green banking guarantees the protection of environment and maintenance of social responsibility, which is essential for our existence. In this new age environmental security and awareness mixed with sustainable development, climate change and ecological balance is well-known to all and most of the banks of world is considering to include these issues in their banking operation policy. The paper roots through the past literary works to construct a framework

An integration of D-8 countries with the focus of competitiveness, opulence and economic accretion via the advancement of SMES : Bangladesh perspective and scope of cooperation

Radical transmutation of technology and integrating and interrelationship with the world community facilitated economic proliferation and deplete multitudinous problems encompasses with the SME that is an inevitable and enviable subject matter in the global market for alleviating poverty, engender manifold employment opportunities, evolution of economic standard and exploring apparent resources. D-8 in their recent conglomeration exhibits their necessity to consolidate their strengthen and propitious approach for the purpose of propagation of collaboration and conciliation that indubitably prevailing propinquity and ensuring sustainable economic amelioration. In Bangladesh, one of the D-8 members, development of SME sectors is an astounding appliance for accomplishing industrialization, attaining millennium development goals such as eradication of extreme poverty, developing a global partnership for development etc. Capital accumulations, business environment, indistinctive framework for SME are the major impediments in Bangladesh. Facilitating cross-border integration, cross national cooperation, cluster or network development, construction of international value chain, Public- private partnership and also to establish congruous strategies and programs within the internal infrastructure may assist to mitigate the predicaments and also comply with the commitment of local government for unremitting growth of SME in Bangladesh

Influence of stakeholders in developing green banking products in Bangladesh

Environmental concern is trying to control the patterns of consumers’ consumption and behavior of manufacturing industries and business enterprises worldwide since climate change issues has been considered as a global challenge. After so many argumentations in the developed countries, it has become an incessant public endearment in the developing countries like Bangladesh, as the level of environmental deterioration has picked up to the mountains. Many measures have been taken into account while adapting to climate changes, but the actions are inconsistent in many cases especially in the financial sector (most appropriately in the banking sector). This study aims to highlight the supreme benefits, encountering challenges, strategic aspects of Green Banking with two major objectives. First one is to caricature the existing scenario of green banking practice in Bangladesh and the other one is to accentuate how individual and also institutional stakeholder forces such as regulatory, managerial or environmental, that can affect the deliberate environmental behavior of banks performing in Bangladesh. The findings suggest that banks should go green and play a pro-active role to take environmental aspects for functional improvements and changing client habits in banking business. Use of appropriate environmental technologies and management systems will not only be useful for environment, but also provide benefits as greater operational efficiencies. After using both descriptive and inferential statistics analysis, this study also advocacy for the necessity of stakeholder’s influences in green banking practice and recommend some indication for Government, the whole banking sector and for the business community

Looking inside the association between information technology and banking performance

Technology, undoubtedly, is the key strategic issue in modern banking. Over the past few decades the use of technology for commercial purposes in developed countries has become widespread. Although the use of Information System for commercial purposes or electronic commerce is still in growing stage, the growth of the Information Technology is changing the way of consumer banking. It has been predicted that the majority of the bank customers will soon prefer to manage their banking transactions through technology. This paper will try to establish a relationship between IS and the financial performance indicators of commercial banks in Bangladesh by representing the correlation between IS with profit, assets and equity of these commercial banks using statistical tools. Thus the paper will look into the values of information systems in commercial banking services in Bangladesh

Domestic and international trade liberalisation of the Indian economy : domestic firms & MNCs response

Over the past two decades trade liberalisation has become an important part of many countries development strategies. Winters L. A. (2004) describes trade liberalisation is the elimination of or reduction in the trade rules that prevent free flow of products or services from one country to another. It may contain dismantling of fare for example duties, surcharges, and export subsidies as well as nontariff barriers like licensing regulations, quotas, arbitrary standards etc. With the start of improvements and liberalisation the Indian economy in the month of July, 1991, a new period has emerged for India and its billion plus inhabitants. This era of economic shift has had a remarkable influence on the overall economic growth of almost all the major areas of the economy, and its effects over the last decade cannot be overlooked. Further, it also results the initiation of the actual integration of the Indian economy into the global context. Objective of this paper is to find what has been the response to this challenge from the domestic corporations of India and implications for the MNCs which are seeking opportunities for locating or relocating their subsidiaries over there

How earning per share (EPS) affects on share price and firm value

Earnings per Share (EPS) is generally considered most important factor to determine share price and firm value. Literature shows that most of the individual investors take their individual investment decision based on the EPS. This paper attempts to provide empirical evidence on how EPS affect the share price movement. We have collected and analyzed 22 scheduled banks 110 firm year data and found that share price does not move as fast as the EPS move. We also further found that the share price movement depends on micro and macro economic factors on the economy. We suggest that investors must consider other factors as well as EPS in order to invest in the security market. Earnings per Share (EPS) is generally considered most important factor to determine share price and firm value. Literature shows that most of the individual investors take their individual investment decision based on the EPS. This paper attempts to provide empirical evidence on how EPS affect the share price movement. We have collected and analyzed 22 scheduled banks 110 firm year data and found that share price does not move as fast as the EPS move. We also further found that the share price movement depends on micro and macro economic factors on the economy. We suggest that investors must consider other factors as well as EPS in order to invest in the security market

Domestic and international trade liberalisation of the Indian economy : domestic firms & MNCs response

Over the past two decades trade liberalisation has become an important part of many countries development strategies. Winters L. A. (2004) describes trade liberalisation is the elimination of or reduction in the trade rules that prevent free flow of products or services from one country to another. It may contain dismantling of fare for example duties, surcharges, and export subsidies as well as nontariff barriers like licensing regulations, quotas, arbitrary standards etc. With the start of improvements and liberalisation the Indian economy in the month of July, 1991, a new period has emerged for India and its billion plus inhabitants. This era of economic shift has had a remarkable influence on the overall economic growth of almost all the major areas of the economy, and its effects over the last decade cannot be overlooked. Further, it also results the initiation of the actual integration of the Indian economy into the global context. Objective of this paper is to find what has been the response to this challenge from the domestic corporations of India and implications for the MNCs which are seeking opportunities for locating or relocating their subsidiaries over there