Bank capital, interbank contagion, and bailout policy

Tian, Shu; Yang, Yunhong; Zhang, Gaiyan

doi:10.1016/j.jbankfin.2013.03.024

Cited by 20 publications

(13 citation statements)

References 56 publications

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“…An application of the minimum CAR protects depositors and promotes stability and low risk in the banking and financial system. Moreover, Tian et al (2013) show that such a conservation capital buffer as in Basel III could increase 11 We do not assess banking sector efficiency with a proxy of the interest rate spread, which is the difference between the lending and deposit rates. The reason is that the interest rate spread really depends on monetary policy rather than sector performance.…”

Section: Sector Performance Variablesmentioning

confidence: 99%

Financial stability in Europe: Banking and sovereign risk

Brůha

Kočenda

2018

Journal of Financial Stability

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We analyze the link between banking sector quality and sovereign risk in the whole European Union over 1999-2014. We employ four different indicators of sovereign risk (including market-and opinion-based assessments), a rich set of theoretically and empirically motivated banking sector characteristics, and a Bayesian inference in panel estimation as a methodology. We show that a higher proportion of non-performing loans is the single most influential sectorspecific variable that is associated with increased sovereign risk. The sector's depth provides mixed results. The stability (capital adequacy ratio) and size (TBA) of the industry are linked to lower sovereign risk in general. Foreign bank penetration and competition (a more diversified structure of the industry) are linked to lower sovereign risk. Our results also support the wakeup call hypothesis in that markets re-appraised a number of banking sector-related issues in the pricing of sovereign risk after the onset of the sovereign crisis in Europe. JEL-Codes: C230, E580, F150, G210, G280, H630. Terms of use: Documents in

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Section: Sector Performance Variablesmentioning

confidence: 99%

Financial stability in Europe: Banking and sovereign risk

Brůha

Kočenda

2018

Journal of Financial Stability

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“…It also supports growth as a free source of funds and provides protection against insolvency. In addition to meeting regulatory capital requirements, maintaining additional capital beyond the statutory requirements is critical for banks to survive during a crisis and better cope with exogenous shocks (Tian et al 2013). Thus, capital adequacy should be a critical determinant of bank credit risk.…”

Section: Camels Indicatorsmentioning

confidence: 99%

“…Such limited variation in leverage could exaggerate the credit-spread puzzle in the banking industry. However, some banks may choose to hold additional levels of capital buffers in excess of the regulatory requirement and hence have lower leverage to reduce the probability that they have to raise costly equity or suffer from exogenous shocks in case they occur (Barth et al 2006;Berger et al 1995;Brewer et al 2008;Diamond and Rajan 2000;Flannery 1994;Tian et al 2013). Therefore, banks can have optimal leverage ratios cross-sectionally just as nonfinancial firms do.…”

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confidence: 99%

The Determinants of Global Bank Credit-Default-Swap Spreads

2015

Self Cite

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Using a sample of 161 global banks in 23 countries, we examine the applicability of market-based structural models and accounting-based bank fundamentals to price global bank credit risk. First, we find that variables predicted by structural models are significantly associated with bank CDS spreads. Second, some CAMELS indicators contain incremental information for bank CDS prices. We find no evidence in favor of one model over the other, while the combined structural and CAMELS model performs better than each individual model. Moreover, leverage and asset quality have had a stronger impact on bank CDS since the onset of the recent financial crisis. Banks in countries with lower stock market volatility, fewer entry barriers, and/or more financial conglomerate restrictions tend to have lower credit risk. Deposit insurance appears to have an adverse effect on bank CDS spreads, indicating a moral hazard problem.

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“…However, the results pointed out are only relationships between banks in the interbank market and are missing the vision to show whether there is potential contagion in the interbank market change. Tian et al (2013) developed a theoretical framework that could identify a range of factors that strengthen or weaken the possibility of contagion and bailout. The choices available for so-called healthy bank included interbank capital.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Contagion would occur if the bank's capital holding was below the smaller amount of regulatory capital required to take over or liquidate its project. Tian et al (2013) also concluded that increasing the minimum regulatory capital did not necessarily reduce contagion, while the precautionary risk management inventory buffer of banks could help the bank to avoid contagion. In my article, the empirical analysis of the pre-and post-regulation periods is a confirmation of these conclusions in the case of Vietnam.…”

Section: Literature Reviewmentioning

confidence: 99%

Adjustment of interbank lending in pre- and post-regulation periods: Empirical analysis of Vietnamese commercial banks

Tung

2017

Journal of International Studies

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Abstract.This article aims to analyze the interbank lending adjustment during the period when Vietnamese commercial banks are compliant with some parts of the Basel regulation framework. A pilot regulation period has started in 2011 and full application will be effective by the end of 2018. Partial adjustment models and variance decomposition are used for the analyses. In the analysis of the quarterly released financial statements of Vietnamese commercial banks in the period from 2008/Q1 to 2015/Q4, the empirical evidence showed that throughout the period, lending to non-bank and high liquidity assets contributed to the adjustment in both long run and short run with a negative association. In addition, the loan loss allowance contributed to the adjustment in the post-regulation period only with a positive association. These highly contributing factors also show a potential shock after the adjustment of the interbank lending. The results imply there is a need for interbank lending portfolio report and an efficient control over the IRB of Vietnamese commercial banks.

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Bank capital, interbank contagion, and bailout policy

Cited by 20 publications

References 56 publications

Financial stability in Europe: Banking and sovereign risk

Financial stability in Europe: Banking and sovereign risk

The Determinants of Global Bank Credit-Default-Swap Spreads

Adjustment of interbank lending in pre- and post-regulation periods: Empirical analysis of Vietnamese commercial banks

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