Does CEO gender matter for bank risk?

This paper addresses the relation between CEO gender and bank risk. We exploit a unique dataset of 365 Polish cooperative banks, 42% of which are run by female CEOs. We find that banks headed by female CEOs are less risky: they report higher capital adequacy and equity to assets ratios. Credit risk in female-led banks is not different from male-led banks, and therefore higher capital adequacy does not stem from lower asset quality and is likely to be linked to higher risk aversion of female CEOs. Our evidence supports the view that women are more risk averse bank CEOs than men. Our findings suggest that gender quotas in bank boards can contribute to reduce risk-taking behavior.     

Does bank capitalization matter for bank stock returns?

We examine US bank capitalization and its association with bank stock returns, and find that the book- and market-based capital ratios show different patterns. Fama-MacBeth regressions and portfolio analyses suggest that banks’ market-based capital ratios are negatively associated with banks’ stock returns during the (tranquil) 1994–2007 period while book-based capital ratios are positively associated with banks’ stock returns during the (turbulent) 2008–2014 period. These results suggest that the effect of bank capitalization on bank stock returns depends on the capital measure used and the period considered.     

Political environment and bank performance: Does bank size matter?

In this study, we investigate the relationship between the political environment and bank performance and whether this relationship is contingent on bank size. We use a sample comprising more than 1600 banks in 58 countries and a set of multidimensional measures collected by the Economist Intelligence Unit to proxy for the political environment. Overall, our findings indicate that political uncertainty is associated with a significant decrease in bank performance. A deeper analysis shows that bank size matters when analyzing the relationship between political risk and bank performance. Precisely, large banks are less vulnerable and more resilient under political distress than other banks. Our findings shed light on the importance of bank size as a determinant of bank performance in countries with high political risk, particularly for investment decision makers. The results are robust to a variety of alternative measurements, and different estimation techniques to deal with endogeneity.     

Determinants of bank interest margins in Russia: Does bank ownership matter?

This paper analyzes interest margin determinants in the Russian banking sector with a particular emphasis on the bank ownership structure. Using unique bank-level data covering Russia's entire banking sector for the 1999–2007 period, we find that the impact of a number of commonly used determinants such as market structure, credit risk, liquidity risk and size of operations differs across state-controlled, domestic-private and foreign-owned banks. At the same time, the influence of operational costs and risk aversion is homogeneous across ownership groups. The results overall suggest that the form of bank ownership needs to be considered when analyzing interest margin determinants.     

Does diversification promote systemic risk?

We measure systemic risk when faced with simulated shocks through the systemic model of banking originated losses. The formation mechanism of systemic risk is explored from the perspective of investment diversification and asset similarity. The results indicate that contagion risks formed by the over similarity of investment assets are the main cause of systemic risk. The similarity generally promotes contagion risks, however, it shows a double-faced effect for state-owned commercial banks that disperse shocks from counterparties through their too-big-to-fail advantages. The similarity is determined by diversification, which initially promotes similarity and disperses it after a threshold. The diversification acts on the contagion process of systemic risk by the mediation of the similarity. Therefore, diversification generally has a nonlinear impact on systemic risk. The results provide regulatory implications for the systemic stability of the banking system.     

Did covenants distort risk signals from bank subordinated debt yields before the financial crisis?

Restrictive covenants on bank debt require a bank to take or refrain from specific actions that affect the riskiness of that debt. Although covenants all but disappeared in the 1990s, they re-emerged after 2004 with an increase in bank risk leading up to the financial crisis. Subordinated debt yields potentially enable better risk monitoring by supervisors, but covenants can shift risk from bondholders to stockholders without reducing overall bank risk. This can distort the risk signal used by market participants to discipline excessive risk taking. Because covenants are endogenous and increase during periods of bank stress, the yield signal is dampened the most precisely when regulators most need accurate risk monitoring.     

In search for yield? Survey-based evidence on bank risk taking

Monetary policy can have an impact on economic and financial stability through the risk taking of banks. Falling interest rates might induce investment into risky activities. This paper provides evidence on the link between monetary policy and bank risk taking. We use a factor-augmented vector autoregressive model (FAVAR) for the US for the period 1997–2008. Besides standard macroeconomic indicators, we include factors summarizing information provided in the Federal Reserve’s Survey of Terms of Business Lending (STBL). These data provide information on banks׳ new loans as well as interest rates for different loan risk categories and different banking groups. We identify a risk-taking channel of monetary policy by distinguishing responses to monetary policy shocks across different types of banks and different loan risk categories. Following an expansionary monetary policy shock, small domestic banks increase their exposure to risk. Large domestic banks do not change their risk exposure. Foreign banks take on more risk only in the mid-2000s, when interest rates were ‘too low for too long’.     

Time-frequency co-movements between bank credit supply and economic growth in an emerging market: Does the bank ownership structure matter?

This study aims to shed some light on the causal link between bank credit supply and economic growth in Turkey for the banks with the different ownership structures between 1993Q4 and 2017Q3. Wavelet coherence test is used to obtain this objective and to answer the following questions: (i) does bank credit supply lead to economic growth in Turkey and vice versa, and (ii) does the bank ownership matters in this linkage? The findings from wavelet coherence reveal that between 1993 and 2003 in the short and medium term, economic growth leads credit supply but in the long run there is feedback causality between credit supply and economic growth for only public and private banks. However, in the long-run between 1993 and 2003 economic growth leads credit supply in the foreign banks in Turkey. Between 2004 and 2017, there is feedback causality between credit supply and economic growth. Moreover, our findings suggest that bank ownership affects the strength of the linkage between credit supply and economic growth in Turkey especially in the short and medium terms. More specially, within the three types of bank ownership, the findings imply that the strongest correlation among the variables is for the private banks while the weakest one is for foreign banks.     

Does risk sharing increase with risk aversion and risk when commitment is limited?

I consider a risk-sharing game with limited commitment, and study how the discount factor above which perfect risk sharing is self-enforcing in the long run depends on agents׳ risk aversion and the riskiness of their endowment. When agents face no aggregate risk, a mean-preserving spread may destroy the sustainability of perfect risk sharing if each agent׳s endowment may take more than three values. With aggregate risk the same can happen with only two possible endowment realizations. With respect to risk aversion the intuitive comparative statics result holds without aggregate risk, but it holds only under strong assumptions in the presence of aggregate risk. In simple settings with two endowment values I also show that the threshold discount factor co-moves with popular measures of risk sharing.     

Trading income and bank charter value during the financial crisis: Does derivatives dealer designation matter?

Derivative markets have exploded over the last decade, remained active in the midst of the 2007–2009 financial crisis and continue to be dominated by a small group of bank holding companies (BHC). BHC motives for derivative usage are usually tied to hedging purposes (balance sheet risk management), trading purposes (profit motives) or some combination thereof. This paper examines the relationship between derivative trading income and bank charter value for 27 BHC between 2001Q1 and 2011Q3. We find that the impact of derivative trading income on bank charter value, using Tobin's Q, is very small and seems to be tied to BHCs derivatives dealer trading designation. We also find that trading incomes are a modest fraction of net operating revenue, highly volatile, and did not contribute to overall BHC income during the crisis.     

Does monetary policy influence banks’ risk weights under the internal ratings-based approach?

This paper studies the extent to which monetary policy may affect banks’ perception of credit risk and the way banks measure risk under the internal ratings-based approach. Specifically, we empirically analyze the effect of different monetary policy variables on banks’ risk weights for credit risk. We present robust evidence of a strong, statistically significant relationship between monetary policy easing and lower implicit risk weights of banks using the internal ratings-based approach. Further, we show that the recent prolonged period of accommodative monetary policy has been instrumental in establishing this relationship. The presented findings have important implications for the prudential authority, which should be aware of the possible side effects of monetary policy on how banks measure risk.     

Calibrating the wealth effects of decoupled payments: Does decreasing absolute risk aversion matter?

Arrow’s hypotheses regarding the relationship between wealth and risk aversion measures have formed the basis for a large body of empirical research and theory. For example, many have suggested that decoupled farm subsidy payments may increase production as they decrease farmers’ risk aversion. This paper develops a new calibration technique designed to measure the minimum change in concavity of a utility of wealth function necessary to describe a particular change in production behavior for some discrete change in wealth. I conclude that measurable changes in production levels should not be produced by changing levels of risk aversion except when wealth changes are a substantial portion of wealth. This tool draws into question the usefulness of Arrow’s hypotheses in many current applications.     

Is the 2008 financial turmoil increasing the risk of a bank run？ An empirical research in Geneva

In this paper, the authors present the results of an empirical study that attempts to analyse the risk of bank run in Geneva, Switzerland. Two similar surveys have been conducted upon two independent samples of Geneva population （June 2008 and February 2009） to detect the existence of predictive signals leading to a bank run within the selected area. The authors discover that Geneva inhabitants are generally confident in Swiss banks; the risk of a bank run in the area is low. However, reliance to the national banking system is worsening： The number of people fearing about their savings and those thinking the default of a major Swiss bank as ＂possible＂ has significantly risen. Also, more and more people keep updated about the current financial crisis; overall trust in Swiss banks has slightly decreased.     

Does financial regulation affect the profit efficiency and risk of banks? Evidence from China's commercial banks

The goal of financial regulation is to enable banks to improve liquidity and solvency. Stricter regulation may be good for bank stability, but not for bank efficiency. This research aims to examine whether banks have met the CBRC's standard of financial regulations and explores how the previously implemented financial regulations have affected bank efficiency and risk in the past. In addition, we also explored the trade-off relationship between efficiency and risk. Unlike other studies, this study used bank assets as a classification standard from the financial risk and differential regulatory perspective.The empirical results indicate that the CBRC regulates the provision coverage ratio and cost-to-income ratio, which seems relevant to large banks and the loan-to-deposit ratio, capital adequacy ratio, and leverage ratio, which seems relevant to small banks. The CBRC regulates the current ratio to reduce the risks of banks. Based on our empirical results, the current ratio did not affect the risks and led to different efficiency results between large and small banks. In an environment with asymmetric information, a bank decision-making is unobservable. The characteristics of financial regulation provide market clues if a bank is operating at the most efficiency and risk condition.     

Does the ideal entrepreneurial team exist?

Up until now, studies on entrepreneurs and their relationship to business performance have focused primarily on analyzing the entrepreneur as an individual. While studies have been conducted on the entrepreneurial team, their focus has centered on team size and degree of diversity - cultural, age, gender - leaving a gap in the analysis of the effect of a team’s competencies on the outcome of the ventures. This research aims to help fill this gap by using the psychometric instrument DISC. This research analyzes entrepreneurship by opportunity, evaluating the performance of 109 Colombian companies and the composition of their entrepreneurial teams. The results obtained provide the basis for better understanding of the make-up of entrepreneurial teams, considering the variances and interdependencies of the competency development level among their members. They reveal that identifying the similarity or heterogeneity in certain groups of competencies, as well as how developed they are, can have an impact on the ventures’ success. The cluster analysis carried out suggests that highly developed competencies associated with the ‘dominance’ dimension in the members of an entrepreneurial team are essential. These must be above-average in heterogeneous levels among the team members. They must also be accompanied by the ‘steadiness’ competency provided by the team-oriented partners, as well as an average, homogeneous level of competencies associated with ‘conscientiousness’ if the new business is to achieve good financial results in its early years. The ‘influence’ dimension did not play a significant role. The teams made up of more homogeneous partners obtained the poorest financial results. Furthermore, the study provides new perspectives for measuring business performance in a venture, as well as for evaluating the relationships between the entrepreneurial team's competencies and the company’s results in the first years of business. Accordingly, it offers inputs for future research.

     

What do bank acquirers value in non-public bank mergers and acquisitions?

This study investigates what target, market, and acquirer characteristics influence book value multiples in 288 non-public bank acquisitions from 2001 Q3 to 2005 Q4. Multiples rise with acquirer size and capital ratios. Targets with high proportions of industry-adjusted core and large deposits have higher multiples. When using target variables relative to acquirers, multiples rise with higher proportions of core and large deposits, larger average bank size in the market, and relative growth in assets, loans, and deposits as well as market growth. In contrast to prior findings for public targets, acquirers do not pay premiums for target accounting performance.     

Does rising income increase or decrease damage risk from natural disasters?

Recent empirical literature has found a negative relationship between income per capita and measures of risk from natural disaster, supportive of logic that higher incomes allow countries to mitigate disaster risk. We argue that behavioral changes at the micro level in response to increasing income (such as location choice and extent of costly abatement activity) may lead to a non-linear relationship between aggregate incomes and disaster damages, where the risks increase with income before they decrease. In a country-year panel data set, we show that disaster risk associated with flooding, landslides and windstorms increases with income up to GDP per capita levels of $5044, $3360, and $4688 per year respectively and decrease thereafter. Such non-linear impacts are absent for other disaster types such as extreme temperature events and earthquakes where the links between human behavioral choices and exposure to risk are not as strong. From a policy perspective, this suggests that for the least developed countries, the dual goals of disaster risk prevention and economic development cannot be assumed to be complementary for all forms of natural disaster. In addition to allocating resources to manage disaster risk, the poorest nations may have to be more proactive in enacting policies that alter the behavioral choices of citizens that impact a country's exposure to natural disaster risk.     

Does the market provide sufficient employment protection?

We ask whether there is an efficiency rationale for public intervention in the form of an employment protection policy. Unlike most of the literature supporting current employment protection legislation we allow employers and workers to include severance payments in their private contracts. We focus attention on a model where firms learn over time about the value of the match. If future wage bargaining cannot be prevented, and even though severance payments may be part of the equilibrium contract, separations are too frequent (private employment protection is insufficient). Mandatory severance payments are not a remedy for this inefficiency. Instead, a Pigouvian tax/subsidy scheme will correct the inefficiency by enhancing employment protection.     

Does taxation on harmful products influence population health? Evidence from Africa using the dynamic panel system GMM approach

Products such as tobacco and alcohol are known to be deleterious to human health. Tobacco use for instance, causes over eight million deaths annually worldwide. This has necessitated the imposition of taxes on such harmful products aimed at reducing their demand and hence ensure enhanced population health. However, while the effects of such taxes on deaths related to the consumption of these products have been given much attention, very little attention has been given to how these taxes enhance overall population health beyond these related deaths. Using tobacco tax as a proxy for taxation on harmful products and life expectancy as a proxy for overall population health, this study, examines the effect of taxing harmful products on population health in 38 African countries from 2008–2018. The system Generalized Methods of Moments (GMM) regression is employed as the empirical estimation technique. The findings of the study show that, taxing harmful products enhances population health both in the short-run and long-run periods. The implication is that, governments, especially those in Africa, can use taxation on harmful products to improve population health even beyond deaths related to the consumption of these products.

     

Does the Lisbon Treaty Effectively Limit the Power of the European Union?

Although the Lisbon Treaty recognises the necessity to limit the power of the European Union, some of its limitations are poorly expressed. As a result, the European Commission has the possibility to act arbitrarily by expanding Union power. The position of the Commission is pre‐eminent, notably with respect to the drafting of EU measures. Not only can the Commission expand Union power, but it may also favour certain actors at the expense of the principals (Member States and their citizens). Indeed, the Commission may apply definitions of the ‘common European interest’ that go beyond the preferences of the principals.