Competition and Bank Risk the Role of Securitization and Bank Capital

We examine how bank competition in the run-up to the 2007–2009 crisis affects banks’ systemic risk during the crisis. We then investigate whether this effect is influenced by two key bank characteristics: securitization and bank capital. Using a sample of the largest listed banks from 15 countries, we find that greater market power at the bank level and higher competition at the industry level lead to higher realized systemic risk. The results suggest that the use of securitization exacerbates the effects of market power on the systemic dimension of bank risk, while capitalization partially mitigates its impact.

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The Role of Bank Liquidity and Bank Risk in Determining Bank Capital: Empirical Analysis of Asian Banking Industry

Review of Pacific Basin Financial Markets and Policies ◽

10.1142/s0219091520500204 ◽

2020 ◽

Vol 23 (03) ◽

pp. 2050020 ◽

Cited By ~ 1

Author(s):

Faisal Abbas ◽

Shahid Iqbal ◽

Bilal Aziz

Keyword(s):

Emerging Economies ◽

Commercial Banks ◽

Banking Industry ◽

Negative Association ◽

Bank Risk ◽

Standard Errors ◽

Bank Capital ◽

Short Run ◽

The Impact

This study provides new insights about how bank liquidity and bank risk have influenced the capital ratio of commercial banks operating in Asia’s emerging economies after the financial crisis 2007–2008. The data were collected for 377 banks from the Bankscope database covering the period of eight years between 2010 and 2017. The linear regression panel-corrected standard errors approach is used to find consistent estimators. The results of the overall sample and medium-sized banks regression revealed a positive relationship between bank liquidity and bank capital ratio, whereas the liquidity and bank capital ratio of large commercial banks have a negative association. The impact of liquidity on bank capital ratio is positive but insignificant in the case of smaller banks. The impact of bank risk on bank capital ratio is negative in the case of smaller and medium-sized banks, whereas the association is found positive in the case of larger and overall banks data results in short run, other things remain unchanged. The findings have valued information for researchers, analysts, managers, and policymakers.

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Can Higher Capital Discipline Bank Risk: Evidence from a Meta-Analysis

Journal of Risk and Financial Management ◽

10.3390/jrfm12030134 ◽

2019 ◽

Vol 12 (3) ◽

pp. 134 ◽

Cited By ~ 3

Author(s):

Quang T. T. Nguyen ◽

Son T. B. Nguyen ◽

Quang V. Nguyen

Keyword(s):

Fixed Effects ◽

Meta Analysis ◽

Model Specification ◽

Bank Risk ◽

Bank Capital ◽

Holding Companies ◽

Wide Range ◽

Negative Effect ◽

Sample Characteristics

Capital regulation has been among the most important tools for regulators to maintain the credibility and stability of the financial systems. However, the question whether higher capital induce banks to take lower risk remains unanswered. This paper examines the effect of capital on bank risk employing a meta-analysis approach, which considers a wide range of empirical papers from 1990 to 2018. We found that the negative effect of bank capital on bank risk, which implies the discipline role of bank capital, is more likely to be reported. However, the reported results are suffered from the publication bias due to the preference for significant estimates and favored results. Our study also shows that the differences in the previous studies’ conclusions are primarily caused by the differences in the study design, particularly the risk and capital measurements; the model specification such as the concern for the dynamic of bank risk behaviors, the endogeneity of the capital and unobserved time fixed effects; along with and the sample characteristics such as the sample size, and whether banks are bank holding companies or located in high-income countries.

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Competition and Bank Risk the Role of Securitization and Bank Capital

SSRN Electronic Journal ◽

10.2139/ssrn.3433132 ◽

2019 ◽

Author(s):

Yener Altunbas ◽

David Marques-Ibanez ◽

Michiel Leuvensteijn ◽

Tianshu Zhao

Keyword(s):

Bank Risk ◽

Bank Capital

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Systemic Risk and Policy Interventions. The Role of Bank Risk Profile

SSRN Electronic Journal ◽

10.2139/ssrn.2542782 ◽

2014 ◽

Author(s):

Simona Mutu

Keyword(s):

Systemic Risk ◽

Risk Profile ◽

Bank Risk ◽

Policy Interventions

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Competition and Financial Stability in the European Listed Banks

SAGE Open ◽

10.1177/21582440211032645 ◽

2021 ◽

Vol 11 (3) ◽

pp. 215824402110326

Author(s):

Maria Celia López-Penabad ◽

Ana Iglesias-Casal ◽

José Fernando Silva Neto

Keyword(s):

Market Power ◽

Risk Taking ◽

Financial Stability ◽

Banking System ◽

Political Community ◽

Bank Risk ◽

Bank Competition ◽

Banking Competition ◽

The Impact ◽

The Relationship

The analysis of the relationship between bank competition and financial stability remains a controversial issue and widely discussed in the academic and political community. Using a sample of 117 listed banks in 16 European countries for the years 2011 to 2018, the article explores the impact of market power, measured by the Lerner index, on the bank stability, measured by distance-to-default and Z score. Our results show that for the overall sample, higher market power in banking decreases the risky behavior of banks, confirming the “competition-fragility” view. We do not find any support for a U-shaped relationship between competition and bank risk-taking. However, our findings differ from previous studies pointing out that the relationship between bank competition and risk-taking is differentiated depending on whether the bank is based in a country with a more stable banking system or a less stable one. In countries with a less financially stable banking system, increased competition leads to increased bank risk-taking. In countries with a more stable banking system, market power seems not to influence banks’ financial stability. Public policies must guarantee banking competition but limiting excessive bank risk-taking, especially in countries with less financially sound banking systems. The consolidation of European banking can be a key element for achieving these policies.

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