IDEAS home Printed from https://ideas.repec.org/a/wly/revfec/v2y1992i1p31-44.html
   My bibliography  Save this article

An Empirical Analysis Of Bank Standby Letters Of Credit Risk

Author

Listed:
  • M. Kabir Hassan

Abstract

Bank exposure to off‐balance sheet activities in general and Standby Letters of Credit (SLCs) in particular has become a major concern to regulators. The risk‐exposure of SLCs has been re‐examined by employing option pricing methodologies to calculate implied asset risk from bank equity and flat deposit insurance, and from risk‐premia on bank subordinated debt. The results indicate that SLC reduce systematic risk, equity risk, and implied asset risk. It appears that Standby Letters of Credit contribute to the overall diversification of bank's assets.

Suggested Citation

  • M. Kabir Hassan, 1992. "An Empirical Analysis Of Bank Standby Letters Of Credit Risk," Review of Financial Economics, John Wiley & Sons, vol. 2(1), pages 31-44, September.
    • Handle: RePEc:wly:revfec:v:2:y:1992:i:1:p:31-44
    DOI: 10.1002/j.1873-5924.1992.tb00554.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/j.1873-5924.1992.tb00554.x
    Download Restriction: no
    File URL: https://libkey.io/10.1002/j.1873-5924.1992.tb00554.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Gorton, Gary & Santomero, Anthony M, 1990. "Market Discipline and Bank Subordinated Debt," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 119-128, February.
    2. Elijah Brewer & Gary D. Koppenhaver & Donald H. Wilson, 1986. "The market perception of bank off balance sheet activities," Proceedings 120, Federal Reserve Bank of Chicago.
    3. Pettway, Richard H, 1976. "Market Tests of Capital Adequacy of Large Commercial Banks," Journal of Finance, American Finance Association, vol. 31(3), pages 865-875, June.
    4. James, Christopher, 1988. "The use of loan sales and standby letters of credit by commercial banks," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 395-422.
    5. Christine A. Pavel, 1988. "Loan sales have little effect on bank risk," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 12(Mar), pages 23-31.
    6. Herbert L. Baer & Elijah Brewer, 1986. "Uninsured deposits as a source of market discipline: some new evidence," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 10(Sep), pages 23-31.
    7. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    8. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    9. Avery, Robert B & Belton, Terrence M & Goldberg, Michael A, 1988. "Market Discipline in Regulating Bank Risk: New Evidence from the Capital Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(4), pages 597-610, November.
    10. Lawrence M. Benveniste & Allen N. Berger, 1986. "An empirical analysis of standby letters of credit," Research Papers in Banking and Financial Economics 85, Board of Governors of the Federal Reserve System (U.S.).
    11. Koppenhaver, G. D. & Stover, Roger D., 1991. "Standby letters of credit and large bank capital: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 15(2), pages 315-327, April.
    12. Barbara Bennett, 1986. "Off balance sheet risk in banking: the case of standby letters of credit," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 19-29.
    13. Gary D. Koppenhaver & Roger D. Stover, 1991. "Standby letters of credit and bank capital: evidence of market disciplines," Proceedings 326, Federal Reserve Bank of Chicago.
    14. Gary D. Koppenhaver, 1987. "Standby letters of credit," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 11(Jul), pages 28-38.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Avery, Robert B. & Berger, Allen N., 1991. "Risk-based capital and deposit insurance reform," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 847-874, September.
    2. anonymous, 1999. "Using subordinated debt as an instrument of market discipline," Staff Studies 172, Board of Governors of the Federal Reserve System (U.S.).
    3. Marc J. K. De Ceuster & Nancy Masschelein, 2003. "Regulating Banks through Market Discipline: A Survey of the Issues," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 749-766, December.
    4. Dilip Madan & Haluk Unal, 1996. "Pricing the Risks of Default," Center for Financial Institutions Working Papers 94-16, Wharton School Center for Financial Institutions, University of Pennsylvania.
    5. Douglas D. Evanoff & Larry D. Wall, 2000. "Subordinated debt and bank capital reform," FRB Atlanta Working Paper 2000-24, Federal Reserve Bank of Atlanta.
    6. Fabio Panetta & Alberto Franco Pozzolo, 2018. "Why do banks securitise their assets? Bank-level evidence from over one hundred countries in the pre-crisis period," Temi di discussione (Economic working papers) 1183, Bank of Italy, Economic Research and International Relations Area.
    7. Christopher M. James, 1987. "Off-balance sheet banking," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 21-36.
    8. M. Kabir Hassan & Ahmad Khasawneh, 2009. "The Determinants of Derivatives Activities in U.S. Commercial Banks," NFI Working Papers 2009-WP-10, Indiana State University, Scott College of Business, Networks Financial Institute.
    9. Stanton, Sonya Williams, 1998. "The Underinvestment Problem and Patterns in Bank Lending," Journal of Financial Intermediation, Elsevier, vol. 7(3), pages 293-326, July.
    10. M. Kabir Hassan & Ahmad Khasawneh, 2009. "The Risks of Off-Balance Sheet Derivatives in U.S. Commercial Banks," NFI Working Papers 2009-WP-11, Indiana State University, Scott College of Business, Networks Financial Institute.
    11. Chen, Andrew H. & Robinson, Kenneth J. & Siems, Thomas F., 2004. "The wealth effects from a subordinated debt policy: evidence from passage of the Gramm-Leach-Bliley Act," Review of Financial Economics, Elsevier, vol. 13(1-2), pages 103-119.
    12. Asli Demirguc-Kunt & Edward J. Kane, 2002. "Deposit Insurance Around the Globe: Where Does It Work?," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 175-195, Spring.
    13. Stijn Claessens & Luc Laeven, 2006. "A Reader in International Corporate Finance, Volume One," World Bank Publications - Books, The World Bank Group, number 7111, December.
    14. Jens Forssbæck, 2011. "Divergence of risk indicators and the conditions for market discipline in banking," SUERF Studies, SUERF - The European Money and Finance Forum, number 2011/4, May.
    15. Daniel M. Covitz & Diana Hancock & Myron L. Kwast, 2004. "A reconsideration of the risk sensitivity of U.S. banking organization subordinated debt spreads: a sample selection approach," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 73-92.
    16. Furfine, Craig H, 2001. "Banks as Monitors of Other Banks: Evidence from the Overnight Federal Funds Market," The Journal of Business, University of Chicago Press, vol. 74(1), pages 33-57, January.
    17. Daniel M. Covitz & Diana Hancock & Myron L. Kwast, 2004. "Market discipline in banking reconsidered: the roles of funding manager decisions and deposit insurance reform," Finance and Economics Discussion Series 2004-53, Board of Governors of the Federal Reserve System (U.S.).
    18. Berger, Allen N. & Herring, Richard J. & Szego, Giorgio P., 1995. "The role of capital in financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 393-430, June.
    19. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
    20. Sharpe, Ian G. & Tuzun, Tayfun, 1997. "The underinvestment hypothesis and off-balance sheet direct credit substitutes," Pacific-Basin Finance Journal, Elsevier, vol. 5(3), pages 325-344, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:revfec:v:2:y:1992:i:1:p:31-44. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1873-5924 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.