Institut für Financial Management

Permanent URI for this collectionhttps://hohpublica.uni-hohenheim.de/handle/123456789/23

Browse

Now showing 1 - 3 of 3

A computational study on the effects of the organizational structures on the risk of different types of banking groups
(2023) Jamshidisafari, Saeed; Burghof, Hans-Peter
In this dissertation, two theoretical models are used to compare centralized and decentralized banking structures. In the first approach, the problem for both banks is to choose an expansive or restrictive credit policy without having complete knowledge of the state of the overall and local economies. Observing and appraising verifiable information (hard information) is the benefit of the centralized banks, whereas considering unverifiable information (soft information) about the local economies, so-called soft signals, is the important asset of the decentralized banks. To compare two banking systems, the risk-return trade-off method is used to determine which type of banking system might have better performance. Although the overestimation of the local economy may have a negative impact, this soft signal has a quite positive impact on risk measures in general. As a result, decentralized bank managers are better at detecting bad loans in their banks. In addition, because small banks have less bureaucracy, the borrower can obtain credit more effortlessly and swiftly. In the second approach, a theoretical bank run model based on Chari and Jagannathan (1988) is developed by implementing a cheap talk game to compare banking structures during bank shocks when managers communicate strategically with depositors to prevent non-efficient bank runs. These two banks behaved considerably differently in the local economy, and this issue is directly tied to regional culture. The limitation of punishment in the legal system incentivizes the management system in centralized banks at some point to be cunning. Consequently, based on the modified model, the higher the punishment or the lower the salary, the less likely the manager is to be persuaded to lie. On the other hand, in small banks, trust and soft information between bank management and depositors protect inefficient bank runs. A decentralized banking system can improve the financial systems credibility by mitigating undesirable shocks during times of crisis. Hence, having decentralized banks in the banking structure increases the depositors’ welfare.
Sovereign and bank risk : contagion, policy uncertainty and interest rates
(2024) Bales, Stephan; Burghof, Hans-Peter
This dissertation addresses the dependence between sovereign and bank default risk and the importance of policy uncertainty and interest rates for this nexus. To this end, the thesis includes four self-contained but interrelated studies with different methodological approaches. The first paper sheds light on the cross-country contagion of sovereign and bank default risk between 2009 and 2021 to assess the introduction of the European Banking Union in 2014. Based on Credit Default Swap premia of systemically important banks in the 10 largest eurozone countries, the estimated network structures provide evidence that the introduction of the Single Supervisory Mechanism, as part of the European Banking Union, has been effective in reducing overall financial contagion in the short run (up to 1 month). In the long run, the risk dependence is still very pronounced. Nevertheless, a shock in sovereign or bank risk is less severely transmitted to other eurozone countries after 2014, indicated by lower volatility spillovers. Thus, the Banking Union supports financial stability by weakening the strength of dependence rather than eliminating the dependence itself. The second study takes a closer look at the domestic dependence between sovereign and bank risk in 14 countries. The estimation of dynamic conditional correlations indicates that the dependence is significantly higher in euro member states. This reveals a systematic eurozone risk factor mainly rooted in the home bias of domestic sovereign bond holdings of eurozone banks. Moreover, fixed-effect panel regressions indicate that the sovereign-bank correlation increases in times of great policy uncertainty, high interbank market rates, low bank lending margins, and a low ratio of core bank capital. Economically, banks with a low level of core equity capital are less capable of withstanding shocks to their balance sheets, which spills over to the state and results in higher risk dependence. In addition, banks charge each other higher rates for short-term lending during times of financial distress. In this way, bank liquidity issues and lending aversion in the interbank market are passed on to other banks and ultimately to the sovereign. Overall, the second study emphasizes the importance of bank capital adequacy regulations and joint European policies to mitigate domestic sovereign-bank dependencies. The third study extends prior results and examines the impact of economic policy uncertainty (EPU) on the sovereign-bank nexus by introducing a continuous wavelet time domain. This setting allows to derive causal lead-lag relationships for each point in time. The assessment of the lead-lag relationships in 10 countries shows that a higher level of sovereign default risk leads to an increase in bank risk in the short horizon. In the medium run (6-32 months), the relationship reverses and the default risk of banks determines sovereign risk. Once the influence of policy uncertainty on sovereign and bank risk is eliminated, the partial coherency shows that the sovereign-bank dependence significantly weakens. This reveals the great relevance of political risk factors for the sovereign-bank nexus. The final study addresses the impact of different sources of uncertainty. Besides newspaper-based economic policy uncertainty, the study employs the implied volatility of options written on the S&P500 and a Twitter-based uncertainty index. Based on stock returns of the 22 largest U.S. banks, the computation of principal components, Granger causality, and volatility spillover provides evidence that EPU and Twitter-based uncertainty capture different sources of investor perception in the very short horizon (up to 1 week). Twitter captures consumer uncertainty more appropriately in the short run than newspapers, which usually have a delay in responding to news due to editorial processes. In addition, the study reveals that the impact of uncertainty is considerably stronger for banks with a high ratio of loans to total assets and a large ratio of derivatives to total bank assets. Moreover, banks with a greater loan ratio face a higher level of credit risk. Assuming that bank risk can be transmitted to the state through the sovereign-bank nexus, the results emphasize the importance of differentiating between the sources of uncertainty to evaluate its implications for financial stability. The findings also highlight the increasing importance of social media for the financial markets.
The connection between banking systems and the economy
(2021) Schmidt, Daniel Alexander; Burghof, Hans-Peter
Banks fulfil various tasks within an economy. While the functions of banks are comparable around the world, the banking business organisation and banking systems are not. In addition, the way in which banks conduct their business differs greatly depending on the legal structure of the institute. Given the important role of banks as well as the variety of banking systems and business models, analysing their influence on the economy and on firms is a relevant task of modern research. In this dissertation, I focus on European countries to answer the overall research question: How are banking systems and the economy connected? My contribution to the literature is threefold. (1) I show that the presence of savings banks and co-operative banks improve regional wealth and reduce inequality. (2) Furthermore, my analyses explain how those banking types enhance the performance of local firms, especially small and medium-sized enterprises. Moreover, I evaluate the connection between banking systems and the economy from a different angle. (3) I outline the impact of economic factors on regulatory capital requirements for large banks. The results suggest that banking regulation is not completely politically independent and differs between European states. I show that national economic preconditions change the parameters for banking business within a country. In my first project, my co-authors and I use panel data on regional levels to study the influence of regional banking systems on local wealth and inequality in five European countries. We know from the literature that banks behave differently depending on their characteristics such as the size, the legal form, their business purposes and their internal company structure. As the varying banking forms have different advantages and disadvantages, a diverse banking system should be beneficial. The econometrical analyses demonstrate the positive impact of a multiplex regional banking system on GDP per capita, the unemployment rate and the primary private household income per capita. The results support the insights from the literature and show the positive influence of small regional banks. The outcome suggests that certain banking forms are beneficial in different situations. For example, savings banks especially reduce local unemployment whereas co-operative banks improve regional GDP per capita, and LLCs have a particularly large impact on primary private household income per capita. In the third chapter, I specify the influence of regional banking systems on certain participants of local economies. Local and decentralized banks are better able to analyse soft information. This ability should be of advantage when working with new companies and smaller firms where, for example, the ability of the management is key for the success of such enterprises. The econometrical analyses in this chapter show the strong positive influence of savings banks, co-operative banks and LLCs on SMEs. The evidence suggests that the positive impact of smaller banks is also apparent when observing performance of all firms within a local economy, but is clearer when looking on SMEs in particular. In the fourth chapter, my co-authors and I analyse the connection between financial systems and the economy from a different perspective. Progressing from a regional level of observation, we concentrate on comparing country information. The literature suggests that politicians might be motivated to influence the regulation of financial institutions to the benefit of their respective country or their own re-election. In panel regressions including information from the EBA, bank balance sheet data and economic data, we demonstrate that the processes to identify systemically important institutions within Europe are comparable. Building on this finding, we show that national regulators adjust the equity requirements for such institutions (i.e. O-SIIs) depending on the economic situation of their respective country. Therefore, capital requirements are influenced by factors not necessarily connected to the systemic importance of large banks. This unequal treatment leads to different business environments for otherwise comparable banks, depending on the country in which they are located. This is especially relevant, as the target was to harmonize banking regulation for large institutions in Europe.

Browse

Browsing Institut für Financial Management by Subject "Bank"