Systemically Important Banks in Europe: Risk, Complexity and Cross-Jurisdictional Activities

Ana-Ștefania Băluţă 1  and Simona Nistor 2
  • 1 Babeș-Bolyai University of Cluj-Napoca, , Romania
  • 2 Babeș-Bolyai University of Cluj-Napoca, , Romania

Abstract

This paper aims to investigate the effects of the assets and liabilities structure of financial institutions considered for regulatory purposes on their probability of default, across a sample of European banks that are designated as Global Systemically Important Banks (G-SIBs). Our analysis spans from 1995 to 2018. The empirical findings of a Fixed Effects panel model indicate that characteristics like size, complexity and cross-jurisdictional activities have a considerable impact on banks’ distance to default. This study also finds that financial institutions with greater Capital Tier1 ratios are more likely to have a lower probability of default, a result that highlights the importance of implementing the BASEL III Capital Accord specifications.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • 1. Beck, T., Demirgüç-Kunt, A., Levine, R. (2006a). Bank concentration, competition, and crises: First results. Journal of Banking and Finance, vol. 30, issue 5, 1581-1603.

  • 2. Beck, T., Demirgüç-Kunt, A., Levine, R. (2006b). Bank concentration and fragility: Impact and mechanics. In: Carey, M., Stulz, R. (eds.), The Risks of Financial Institutions, Chicago, University of Chicago Press.

  • 3. Boot, A.W.A., Thakor, A., 2000. Can relationship lending survive competition? Journal of Finance, vol. 55, 679–713.

  • 4. Boyd, J.H., De Nicolo, G., Smith, B.D. (2004). Crises in competitive versus monopolistic banking systems. Journal of Money, Credit and Banking, vol. 36, issue 3, 487-506.

  • 5. Boyd, J.H., Graham, S.L., Hewitt, R.S. (1993). Bank holding company mergers with nonbank financial firms: Effects on the risk of failure. Journal of Banking and Finance, vol. 17, issue 1, 43-63.

  • 6. Căpraru, B., Moise, N., Nistor Mutu, S., Petria, N. (2016). Financial Stability and Concentration: Evidence from Emerging Europe. Transformations in Business & Economics, vol. 15, no 3C (39C), 376-395.

  • 7. Demirgüç-Kunt, A., Detragiache, E., Tressel, T. (2008). Banking on the principles: Compliance with Basel core principles and bank soundness. Journal of Financial Intermediation, vol. 17, issue 4, 511-542.

  • 8. Emter, L., Schmitz, M., Tirpák, M. (2019). Cross-border banking in the EU since the crisis: what is driving the great retrenchment? Review of World Economics, vol. 155, issue 2, 287-326.

  • 9. Hannan, T.H., Hanweck, G.A. (1988). Bank insolvency risk and the market for large certificates of deposit. Journal of Money, Credit and Banking, vol. 20, issue 2, 203-211.

  • 10. Li, X., Tripe, D. W., Malone, C. B. (2017). Measuring bank risk: An exploration of z-score. Available at SSRN 2823946.

  • 11. Roy, A. D. (1952). Safety first and the holding of assets. Econometrica, vol. 20, issue 3, 431-449.

  • 12. Schaeck, K., Cihák, M. (2012). Banking competition and capital ratios. European Financial Management, vol. 18, issue 5, 836-866.

  • 13. Schaeck, K., Cihák, M., Wolfe, S (2006). Competition, concentration and bank soundness: New evidence from the micro-level. IMF Working Paper No. 06/143.

  • 14. Shin, H. S., & Shin, K. (2011). Procyclicality and Monetary Aggregates. NBER Working Paper No. w16836.

  • 15. Uhde, A., Heimeshoff, U. (2009). Consolidation in banking and financial stability in Europe: Empirical evidence. Journal of Banking & Finance, vol. 33, issue 7, 1299-1311.

  • 16. Poutineau, J.-C., Vermandel, G. (2015). Cross-border banking flows spillovers in the Eurozone: Evidence from an estimated DSGE model. Journal of Economic Dynamics and Control, vol. 51, 378-403.

OPEN ACCESS

Journal + Issues

Search