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Systemic risk-shifting in U.S. commercial banking

Author

Listed:
  • Angelos Kanas

    (University of Piraeus
    Scientific Committee, Parliamentary Budget Office, Hellenic Parliament)

  • Panagiotis D. Zervopoulos

    (University of Sharjah)

Abstract

This paper puts forward the proposition that U.S. commercial banks use dividends as a mechanism to shift systemic risk to debt-holders and the deposit insurer. Using a mixed data sampling modeling approach, it is shown that monthly systemic risk factors are associated with a positive effect on future quarterly bank dividends indicating systemic risk-shifting. These factors include absorption (Kritzman et al. in MIT working paper, 2010), catfin (Allen et al. in Rev Financ Stud 25:3000–3036, 2012), covar (Adrian and Brunnermeier in CoVaR. NBER Working Paper 17454. National Bureau Economic Research, Cambridge, MA, 2011), delta_covar (Adrian and Brunnermeier 2011, mes (Acharya et al. in Rev Financ Stud 24:2166–2205, 2011b), real_vol (Giglio et al. in J Financ Econ 119:457–471, 2016), and size_con (Giglio et al. 2016). In addition, they can now-cast the upward trend in systemic risk-shifting in the 1990s and the downward trend from the early 2000s to 2007. The findings suggest that the rules governing bank dividends need be revised, support the imposition of a dividend tax to mitigate the negative externalities of dividends as a risk-shifting mechanism, and document a reduced effectiveness of Prompt Corrective Action in controlling risk-shifting.

Suggested Citation

  • Angelos Kanas & Panagiotis D. Zervopoulos, 2020. "Systemic risk-shifting in U.S. commercial banking," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 517-539, February.
    • Handle: RePEc:kap:rqfnac:v:54:y:2020:i:2:d:10.1007_s11156-019-00797-5
    DOI: 10.1007/s11156-019-00797-5
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    References listed on IDEAS

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    2. Angelos Kanas & Panagiotis D. Zervopoulos, 2021. "Systemic risk, real GDP growth, and sentiment," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 461-485, August.

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    More about this item

    Keywords

    Systemic risk; Dividend payout; Mixed data sampling; Risk-shifting;
    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

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