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Asset encumbrance in banks: Is systemic risk affected?

Author

Listed:
  • Cipollini, Fabrizio
  • Ielasi, Federica
  • Querci, Francesca

Abstract

The growing reliance on secured funding by banks has increased the relevance of collateralization and asset encumbrance (AE). This paper examines the main determinants of AE and verify its effects on banks’ systemic risk, which threatens financial stability. Using a novel dataset including hand-collected data on AE from banks’ Pillar III reports, we perform a panel regression analysis for European listed banks from 2014 to 2019. We find that the AE ratio is driven mainly by the bank business model, capitalization and sovereign funding conditions. Our empirical results highlight that it is not the AE level per se that influences banks’ systemic risk, but rather the change in encumbered assets. Nevertheless, bank capitalization plays a strong moderating role in this relationship. According to our results, supervisors and policy makers should pay specific attention to the combined phenomena involved in the increasing encumbrance in less capitalized banks.

Suggested Citation

  • Cipollini, Fabrizio & Ielasi, Federica & Querci, Francesca, 2024. "Asset encumbrance in banks: Is systemic risk affected?," Research in International Business and Finance, Elsevier, vol. 67(PA).
    • Handle: RePEc:eee:riibaf:v:67:y:2024:i:pa:s0275531923002490
    DOI: 10.1016/j.ribaf.2023.102123
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    Keywords

    Asset encumbrance; Systemic risk; Bank stability; European banks;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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