Size is everything: Explaining SIFI designations

Irresberger, Felix; Bierth, Christopher; Weiß, Gregor N. F.

doi:10.1016/j.rfe.2016.09.003

Cited by 11 publications

(3 citation statements)

References 47 publications

(92 reference statements)

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“…Finally, we conclude our findings support the studies of Zhou ( 2009), Caccioli et al (2012), Elliott et al (2014), andTarashev et al (2016) who approve theoretically that financial stability is negatively affected by large banks through higher contribution to systemic risk. Our findings are aligned with evidence from empirical studies showing larger banks are the most important determinant of systemic importance for the U.S. banks (Hovakimian et al, 2012;Vallascas and Keasely, 2012;Adrian and Brunnermeier, 2016;Irresberger et al, 2017;Varotto and Zhao, 2018;Brunnermeier et al, 2020), for the European banks (Karimalis and Nomikos, 2018;Borri et al, 2022), and international banks (Lahmann and Kaserer, 2011; Moratis and Sakellaris, 2021;Pham et al, 2021;Maghyereh and Hussein, 2021;Maghyereh and Yamani, 2022).…”

Section: Resultssupporting

confidence: 89%

The Systemic Risk in the Gulf Cooperation Council Countries’ Equity Markets and Banking Sectors: A Dynamic Covar Approach

Maghyereh¹,

Virk²,

Awartani³

et al. 2022

bemp

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This paper examines the systemic risk and its spillover between banking sectors of the Gulf Cooperation Council (GCC) region using the conditional value-at-risk framework. We construct country-specific banking indices using 11 large banks in the region that are systemically important (SIB). We report evidence of systemic risk spilloversfrom SIBs to the broad-based GCC market indices. The incremental tail spillovers are statistically significant for other domestic banks’ tail risk and inflate the systemic risk of cross-country GCC banks.

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Section: Resultssupporting

confidence: 89%

The Systemic Risk in the Gulf Cooperation Council Countries’ Equity Markets and Banking Sectors: A Dynamic Covar Approach

Maghyereh¹,

Virk²,

Awartani³

et al. 2022

bemp

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“…An increase in the Lerner index indicates a deterioration of the competitive conduct of financial intermediaries, a result that aligns with results on concentration. Connectedly, bank size appears to have a negative and significant impact on systematic risk in national bank mergers, but not in cross-border ones, justifying a similar behaviour pertaining to concentration, competition and moral hazard in relation to bank risk (Beck et al , 2006; Demsetz and Strahan, 1997; Irresberger et al , 2016).…”

Section: Resultsmentioning

confidence: 94%

Bank mergers: the cyclical behaviour of regulation, risk and returns

Hassan

Giouvris

2021

JFEP

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Purpose The purpose of this paper is to examine the effects of bank mergers on systemic and systematic risks on the relative merits of product and market diversification strategies. It also observes determinants of M&A deals criteria, product and market diversification positioning, crisis threshold and other regulatory and market factors. Design/methodology/approach This research examines the impact and association between merger announcements and regulatory reforms at bank and system levels by investigating the impact of various bank consolidation strategies on firms’ risks. We estimate beta(s) as an index of financial institutions’ systematic risk. We then develop an index of the estimated equity value loss as the long-rum marginal expected shortfall (LRMES). LRMES contributes to compute systemic risk (SRISK) contribution of these firms, which is the capital that a firm is expected to need if we have another financial crisis. Findings Large acquiring banks decrease systemic risk contribution in cross-border M&As with a non-bank financial institution, and witness profitability (ROA) gains, supporting geographic diversification stability. Capital requirements, activity restrictions and bank concentration increase systemic risk contribution in national mergers. Bank mergers with investment FIs targets enhance productivity but impair technical efficiency, contrary to bank-real estate deals where technical efficiency change accompanied lower systemic risk contribution. Practical implications Financial institutions are recommended to avoid trapped capital and liquidity by efficiently using local balance sheet and strengthening them via implementing models that clearly set diversification and netting benefits to determine capital reserves and to drive capital efficiency through the clarity on product–activity–geography diversification and focus. This contributes to successful ringfencing, decreases compliance costs and maximises returns and minimises several risks including systemic risk. Social implications Policy implications: the adversative properties of bank mergers in respect of systemic risk require strict and innovative monitoring of bank mergers from the bidding level by both acquirers and targets and regulators and competition supervisory bodies. Moreover, emphasis on regulators/governments intervention and role, as it provides a stabilising factor of the markets and consecutively lower systemic risk even if the systematic idiosyncratic risk contribution was significant. However, such roles have to be well planned and scaled to avoid providing motives for banks to seek too-big-too-fail or too-big-to-discipline status. Originality/value This research contributes to the renewing regulatory debate on banks sustainable structures by examining the risk effect of bank diversification versus focus. The authors aim to address the multidimensional impacts and risks inherent to M&A deals, by examining the extent of the interconnectedness of M&A and its implications within and beyond the banking sector.

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“…This paper is also related to the literature about determinants of systemic risk. Commercial banks have been extensively studied and several papers have explored the role of size, market power, VaR, leverage, and maturity mismatch (Anginer et al, 2014;Black et al, 2016;Irresberger et al, 2017;Laeven et al, 2016;Varotto and Zhao, 2018;Buch et al, 2019), their dependence on short-term wholesale funding (Karim et al, 2013;Lopez-Espinosa et al, 2013;Mayordomo et al, 2014;Moore and Zhou, 2013), the relevance of non-interest rate income (De Jonghe, 2010;De Jonghe et al, 2015;Bostandzic and Weiβ, 2018;Kamani, Forthcoming), and interconnectedness (Markose et al, 2012;Battiston et al, 2012). Likewise, commercial banks in this paper play a major role as they are the most important financial institution at the financial conglomerate, and consequently whatever happens to them will also affect the latter.…”

Section: Introductionmentioning

confidence: 99%

Reciprocal Lending Relationships Between Financial Conglomerates: Evidence from the Mexican Repo Market

2019

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This paper examines the reciprocal lending between Financial Conglomerates in the repo market to better understand both what motivates powerful firms to engage in this type of contemporaneous crossfunding relationships, and, on the other hand, some of the implications that such reciprocal transactions may entail for the agents involved and for the market as a whole. In particular, in terms of the implications we focus on two dimensions: first, the potential effects that reciprocal lending has on the market power of FCs and the competitiveness of the repo market for mutual funds and second, the potential implications that frequent and stable reciprocal lending can have in terms of the industry's systemic risk. Using transaction-level data from the Mexican repo market, we show that reciprocal lending between financial conglomerates is mutually beneficial as it reduces search costs for borrowers and mitigates credit risk concerns for lenders. Further, we find that reciprocal lending favors market concentration of the repo lending in a few powerful funds and increases fund market power. Finally, we find that reciprocal lending also leads to centrality within the financial network and increases the dependence between the parties involved. Interestingly, a higher intensity of reciprocal lending can harmful, but this does not necessarily deteriorates financial stability.

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Size is everything: Explaining SIFI designations

Cited by 11 publications

References 47 publications

The Systemic Risk in the Gulf Cooperation Council Countries’ Equity Markets and Banking Sectors: A Dynamic Covar Approach

The Systemic Risk in the Gulf Cooperation Council Countries’ Equity Markets and Banking Sectors: A Dynamic Covar Approach

Bank mergers: the cyclical behaviour of regulation, risk and returns

Reciprocal Lending Relationships Between Financial Conglomerates: Evidence from the Mexican Repo Market

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