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Title: Banking risk in Europe : an analysis via market data
Author: Vallascas , Francesco
Awarding Body: University of Leeds
Current Institution: University of Leeds
Date of Award: 2013
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The recent global financial crisis has put bank risk-taking at the centre of the regulatory agenda. A broad consensus has emerged between academics and regulators on the need to implement modifications to the regulatory framework to enhance the resilience of individual banks, and of the full banking system, to shocks. The purpose of this thesis is to examine four themes of banking risk that relate to the on-going debate on how to reform regulation in the banking industry. The focus of the empirical tests is in particular on Europe and on the threats for financial stability produced by large banking firms. After having discussed the implications for the analysis of banking risk produced by the financial crisis, the thesis examines the geographic origins of shocks that might undermine bank stability in Europe with the purpose of deriving implications for forms of cross-border regulation. The analysis of the trends and composition of volatility across European banking systems from January 1 988 to December 2010 shows the increasing vulnerability of the European banking systems to International and European shocks and an increasing likelihood of cross-border banking crises. Next, the thesis focuses on the design of microprudential requirements for banks and proposes a novel empirical approach to measure a bank's exposure to systemic shocks for an extensive sample of listed European banks. The analysis shows that the introduction of a cap on bank absolute size appears the most effective tool, ceteris paribus, to reduce the default risk of a bank given systemic events. Furthernore, in spite of the integration process of the financial industry in Europe, the analysis presented here shows that such a cap should be country specific with smaller economies requiring smaller banks. The thesis proceeds with the evaluation of the importance of rules on bank transparency by assessing the impact of information asymmetry on bank default risk in Europe. This analysis shows that banks that are more difficult to value by investors are characterised by a higher default risk. The risk-increasing effect of information asymmetry is present both before and during the global financial crisis but the drivers of this effect differ in the two periods. In the years preceding the crisis, information asymmetry leads to an increase in default risk via excessive risk-taking by banks; during the crisis it determines an increase in default risk through a larger exposure of banks to shocks. The last empirical chapter focuses on the design of macroprudential rules and in particular on the contribution offered by market based measures that have been proposed to quantify systemic importance. The analysis shows that these measures achieve very different results when they rank an international sample of banks and other financial institutions in terms of global systemic importance but also shows the ability of these measures to offer early warning signals to regulators.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available