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Author: Lisa E. Williams
Publisher:
ISBN:
Category : Banks and banking
Languages : en
Pages : 153
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Book Description
Risks in the banking industry occasionally come into the public spotlight due to events such as the recent financial crisis. This study examines risk characteristics of bank holding companies (BHCs) based upon their use of interest rate derivatives. Prior research examining interest rate derivatives in BHCs is based upon data prior to the required segregation indicating whether or not derivatives are used for trading. This research uses segregated derivative data. BHCs are divided into those using no derivatives, those using non-trading derivatives, and those using both trading and non-trading derivatives. Differences in both interest rate sensitivity and overall firm risk between BHCs of differing derivative types are analyzed. Evidence indicates BHCs using non-trading derivatives have higher interest rate sensitivity than those using no derivatives. In addition, BHCs using both non-trading and trading derivatives have greater interest sensitivity than BHCs using only non-trading derivatives. BHCs using derivatives regardless of type do not exhibit greater overall volatility than BHCs using no derivatives. Selective hedging, partially but not fully hedging a risk exposure, is also examined. BHCs successfully trading in derivatives must invest in personnel with the requisite expertise. It is plausible these BHCs would leverage this expertise to selectively hedge in their non-trading portfolio. Whether or not these BHCs selectively hedge is inconclusive. However, in most instances, derivative positions in the non-trading portfolio of these BHCs are advantageous. Whether operational hedging is a substitute for or a complement to financial hedging is also explored. Prior research limits operational hedging in BHCs to merger and acquisition activity. This research examines operational activities involving geographic diversification, loan diversification, and non-interest income diversification. Evidence supports these operational activities act as hedges and are substitutes for financial hedging. Of the three operational hedges examined, only geographic diversification is associated with decreased BHC interest rate sensitivity. This dissertation contributes to existing literature by fostering a clearer understanding of BHC risk management strategies. Given the crucial role the health of the banking industry plays in the overall health of the economy, understanding how banks manage various risks is beneficial to regulators and investors.
Author: Lisa E. Williams
Publisher:
ISBN:
Category : Banks and banking
Languages : en
Pages : 153
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Book Description
Risks in the banking industry occasionally come into the public spotlight due to events such as the recent financial crisis. This study examines risk characteristics of bank holding companies (BHCs) based upon their use of interest rate derivatives. Prior research examining interest rate derivatives in BHCs is based upon data prior to the required segregation indicating whether or not derivatives are used for trading. This research uses segregated derivative data. BHCs are divided into those using no derivatives, those using non-trading derivatives, and those using both trading and non-trading derivatives. Differences in both interest rate sensitivity and overall firm risk between BHCs of differing derivative types are analyzed. Evidence indicates BHCs using non-trading derivatives have higher interest rate sensitivity than those using no derivatives. In addition, BHCs using both non-trading and trading derivatives have greater interest sensitivity than BHCs using only non-trading derivatives. BHCs using derivatives regardless of type do not exhibit greater overall volatility than BHCs using no derivatives. Selective hedging, partially but not fully hedging a risk exposure, is also examined. BHCs successfully trading in derivatives must invest in personnel with the requisite expertise. It is plausible these BHCs would leverage this expertise to selectively hedge in their non-trading portfolio. Whether or not these BHCs selectively hedge is inconclusive. However, in most instances, derivative positions in the non-trading portfolio of these BHCs are advantageous. Whether operational hedging is a substitute for or a complement to financial hedging is also explored. Prior research limits operational hedging in BHCs to merger and acquisition activity. This research examines operational activities involving geographic diversification, loan diversification, and non-interest income diversification. Evidence supports these operational activities act as hedges and are substitutes for financial hedging. Of the three operational hedges examined, only geographic diversification is associated with decreased BHC interest rate sensitivity. This dissertation contributes to existing literature by fostering a clearer understanding of BHC risk management strategies. Given the crucial role the health of the banking industry plays in the overall health of the economy, understanding how banks manage various risks is beneficial to regulators and investors.
Author: Congyu Liu
Publisher:
ISBN:
Category : Banks and banking
Languages : en
Pages : 149
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Book Description
This dissertation includes three chapters. The first chapter studies the impact of compensation on the types of risk taken by bank CEOs according to the time horizon when losses are realized. Bonus is recognized to encourage executives to boost short-term profits while equity compensation motivates long term growth. I use Guidance on Sound Incentive Compensation Policies ("the Guidance"), part of the Dodd-Frank Act, as an exogenous shock to the compensation structure of executives in banks with over $1 billion total assets. The Guidance requires banks to make deferred payment and risk adjusted awards. Using banks with less than $1billion in assets as control, I find that the treated banks pay executives with higher percentage in the stocks and engage in activities with less short-term risk and less down-side long-term risk. This paper empirically documents the effectiveness of the Guidance on the bank CEOs compensation and show that the compensation structure alters the types of risk that CEOs take. This second chapter documents the cross hedging of interest rate risk within bank holding companies (BHCs): Subsidiaries capable of risk management manage interest rate risk for themselves and for other banks in the same BHC. Bank mergers are used as exogenous shocks to address endogeneity concerns. Cross hedging increases with the complexity of BHCs, uses funds from the external capital market, and reduces exposure to interest rate risk. The paper contributes to the internal capital market literature by documenting risk management redistribution in BHCs. The third chapter examines the relation between deposit market power and several interest rate risk management tools, including interest rate derivatives hedging, wholesale funding management, and liquid asset management. Drechsler et al. (2017) document that banks can transmit monetary policy without interest rate risk because of their deposit market power. This paper hypothesizes that other risk management tools can be substitutions for market power. It finds that banks with larger market power have lower derivatives hedging level. They respond to a Fed fund rate increase with higher wholesale funding and liquid asset holding to replace the deposit outflow. This paper contributes to the banking risk management literature by documenting the mutual relation among risk management tools.
Author: John Raymond LaBrosse
Publisher: Edward Elgar Publishing
ISBN: 0857933825
Category : Business & Economics
Languages : en
Pages : 529
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Book Description
Incisive, authoritative and thoughtful, this important and timely collection of papers exploring the unresolved issues left by the recent global financial turmoil, will undoubtedly shape the policy responses to come. Interdisciplinary in approach and wide-ranging in jurisdictional scope, it draws together influential commentators, practitioners and regulators, to create a new milestone in the search for the fundamentals of a more stable global financial system.? - Eva Lomnicka, King?s College London, UK ?This book contains a large number of chapters, nearly 30 in all, by acknowledged experts on various aspects of the recent financial crisis. Whichever aspect of this crisis that may interest you, such as bank taxes, deposit insurance, TBTF and how to respond, cross-border issues, and many, many others, you will find chapters that are both authoritative and stimulating in this collection. The editors are to be congratulated not only in their selection of authors but also in the speed with which they have taken them from conference presentation to book chapter.? - Charles Goodhart, London School of Economics, UK Managing Risk in the Financial System makes important and timely contributions to our knowledge and understanding of banking law, financial institution restructuring and related considerations, through the production of an innovative, international and interdisciplinary set of contributions which link law and policy issues surrounding systemic risk and crisis management. The recent financial crisis has exposed both the banking industry and financial system safety net players in many countries to a considerable level of distress as well as economic and reputational damage. These circumstances have heightened the need for policymakers to consider remedial measures under a broad umbrella that encompass inter alia prompt corrective actions, early closure of distressed entities, deposit insurance, bail-outs, state-aid, bank resolution and restructuring techniques. These essays provide an important contribution to research in this area, at a crucial time in the debate around the future financial industry. Contributors
Author: Paola De Vincentiis
Publisher: Springer
ISBN: 3030165264
Category : Business & Economics
Languages : en
Pages : 447
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Book Description
With contributions presented during the Second International Risk Management Conference, this second volume addresses important areas of risk management from a variety of angles and perspectives. The book will cover two separate tracks—financial risk management and risk management and corporate strategies—and will be of interest to academic researchers and students in risk management, banking, and finance.
Author: Anna Chernobai
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Author: Anna Chernobai
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Anthony Tarantino
Publisher: John Wiley and Sons
ISBN: 0470485256
Category : Business & Economics
Languages : en
Pages : 495
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Book Description
Implement next-generation techniques-before disaster strikes—and improve operation risk management "The recent global economic crisis has brought home the need for realistic operational risk management as an important element of an organization's survival strategy in turbulent times. In Risk Management in Finance Dr. Tarantino and his coauthors provide an operational risk framework for the twenty-first-century organization by culling the state-of-the-arts knowledge on next-generation techniques in financial risk management to forestall major risk management failures. This book represents a landmark contribution in attempting to create a corporate world that is able to cope with major crisis. The book should be on the must read list for all those interested in reforming corporate governance." —Dr. Anwar Shah, Lead Economist and Program Leader, Governance, World Bank Institute "As operational risk management advances, interest in process-centered risk management has grown. This timely book presents a valuable overview of leading-edge theory and practice." —Simon Wills, Executive Director, Operational Riskdata eXchange Association (ORX), the world's largest banking association for sharing operational loss data
Author: Andrew Ellul
Publisher:
ISBN:
Category :
Languages : en
Pages : 70
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Book Description
We construct a Risk Management Index (RMI) to measure the strength and independence of the risk management function at bank holding companies (BHCs). U.S. BHCs with higher RMI before the onset of the financial crisis have lower tail risk, lower non-performing loans, and better operating and stock return performance during the financial crisis years. Over the period 1995 to 2010, BHCs with a higher lagged RMI have lower tail risk and higher return on assets, all else equal. Overall, these results suggest that a strong and independent risk management function can curtail tail risk exposures at banks.
Author: Russell Walker
Publisher: World Scientific
ISBN: 9814383899
Category : Business & Economics
Languages : en
Pages : 257
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Book Description
This book develops the notion that companies can succeed on the basis of risk management, much as companies compete on efficiency, costs, labor, location, and other dimensions. The reality of risk and how it impacts companies is that it is much more definite, often catastrophic and looks more like a shock. This is striking, as a difference between firms on risk different than a marginal difference in operating efficiencies, for example. Competing on Risk Management requires a discipline, a commitment to using information and recognizing shocks and then acting upon those to redistribute assets. This book will examine how leading firms that compete on risk have done this and showcase best practices and impacts to the capital structure of firms and their organizational formation.
Author: Saifeddine Ben Hadj
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We first investigate the computational complexity for estimating quantile based risk measures, such as the widespread Value at Risk for banks and Solvency II capital requirements for insurance companies, via nested Monte Carlo simulations. The estimator is a conditional expectation type estimate where two stage simulations are required to evaluate the risk measure: an outer simulation is used to generate risk factor scenarios that govern price movements and an inner simulation is used to evaluate the future portfolio value based on each of those scenarios. The second essay considers the financial stability from a macro perspective. Measuring negative externalities of banks is a major challenge for financial regulators. We propose a new risk management approach to enhance the financial stability and to increase the fairness of financial transactions. The basic idea is that a bank should assume as much risk as it creates. Any imbalance in the tails of the distribution of profit and losses is a sign of the bank's failure to internalize its externalities or the social costs associated with its activities. The aim of the third essay is to find a theoretical justification toward the mutual benefits for members of a bonking union in the context of a strategic interaction model. We use a unique contagion dynamic that marries the rich literature of game theory, contagion in pandemic crisis and the study of collaboration between regulators. The model is focused toward regulating asset classes, not individual banks. This special design addresses moral hazard issues that could result from government intervention in the case of crisis.
