The time profile of risk in banking crises: evidence from Scandinavian banking sectors

Hyytinen, Ari

doi:10.1080/09603100010021746

Cited by 5 publications

(3 citation statements)

References 29 publications

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“…A safety net that is limited can cause smaller banks with low charter value to take on less risk. Hyytinen (2002) Finland, Norway, Sweden, 1983Sweden, /87 -1997 104 observations smooth transition regression, nonparametric kernel method, breakpoint analysis Bank return volatility during the crises period was mostly systematic. It was not until the peak of the crises that the path of certain risk parameters reflected the developments that took place within the banking industry.…”

Section: Discussionmentioning

confidence: 99%

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International Banking and the Allocation of Risk

2007

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Macroeconomic risks could magnify individual bank risk. Mitigating the influence of economy-wide risks on banks could therefore be very important to maintain a smooth-running banking system. In this paper, we explore the extent to which macroeconomic risks affect banks. We use a bank-level dataset on over 2,000 banks worldwide for the years 1995-2002 to study the effect of macroeconomic volatility, the openness of the banking system, and banking regulations on bank risks. Our measure of bank risk is the volatility of banks' pretax profits. We find that macroeconomic volatility increases banks' profit volatility and that international openness of the banking system lowers bank risk. We find no impact of banking regulation on profit volatility. Our findings suggest that if policymakers want to lower bank risk, they should seek to lower macroeconomic volatility as well as increase openness in the banking system.

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Section: Discussionmentioning

confidence: 99%

“…They find that bank stock returns are more volatile and sensitive to shocks during business cycle troughs. Hyytinen (2002) studies the evolution of bank risks during the crises of the Scandinavian banking systems. He finds that bank return variation during the crises was mostly systematic and not idiosyncratic.…”

Section: Motivationmentioning

confidence: 99%

International Banking and the Allocation of Risk

2007

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“…In Europe, the typical example is the Scandinavian banking crisis in the early 1990s caused by a combination of imprudent lending and asset price collapses. An analysis of the time profile of bank risks in the Scandinavian banking crisis reveals that risks were gradually building up in the overlapping periods of financial liberalization, intensified competition, changing macroeconomic conditions, resulting in the ultimate banking crisis (Hyytinen, 2002). Moreover, while banking crises are often caused by an economic downturn, they may also amplify the recession.…”

Section: Introductionmentioning

confidence: 99%

Competition and Profitability in European Financial Services

Balling¹,

Lierman²,

Mullineux³

2006

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Financial services firms play a key role in the European economy. The efficiency and profitability of these firms and the competition among them have an impact on allocation of savings, financing of investment, economic growth, the stability of the financial system and the transmission of monetary policy.Competition and Profitability in European Financial Services is a collection of research contributions which includes evaluations of trends in the European financial services industry and examines the driving forces of efficiency, competition and profitability of financial firms and institutions in Europe. The papers have been written by leading academics and researchers in the field who specialise in strategic, systematic and policy issues related to the European financial services industry.This edited collection will be essential reading for students and academics and will also be of interest to financial practitioners and government officials interested in acquiring a deeper understanding of this complex issue.

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Designing deposit insurance scheme under asymmetric information with double liability option

Bhuyan

Yan

2007

Applied Financial Economics

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In this article, an option theoretic model is applied to develop a Deposit Insurance Scheme under asymmetric information environment. By introducing double liability as an option into the deposit insurance scheme, our model solves the Deposit Insurer's adverse selection problem. With appropriately designed deposit insurance premia and double liability obligations, we demonstrate that separating equilibria exist. The introduction of double liability into the current deposit insurance system adds additional cost to the system to make the insurance scheme more effective. Macey and Miller (1992) suggest that such double liability is a very useful tool for preventing the incentive problem typically created by current deposit insurance schemes. Based on Jackson (1993), Macey and Miller (1993) and Grossman (2002), no consensus exists to explain whether double liability can replace the current deposit insurance system. There are two companion issues that must be considered. The first is the preservation of the safety of the financial system. The second is the incentive created by current deposit insurance schemes for managers to take extra risk. This is an attempt to create a model in which both the deposit insurance premiums and double liability issues are integrated in a manner that preserves incentive compatibility, while embracing risk-sensitive deposit insurance policy.

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The time profile of risk in banking crises: evidence from Scandinavian banking sectors

Cited by 5 publications

References 29 publications

International Banking and the Allocation of Risk

International Banking and the Allocation of Risk

Competition and Profitability in European Financial Services

Designing deposit insurance scheme under asymmetric information with double liability option

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