IDEAS home Printed from https://ideas.repec.org/a/eee/jfinin/v32y2017icp29-44.html
   My bibliography  Save this article

Realized bank risk during the great recession

Author

Listed:
  • Altunbas, Yener
  • Manganelli, Simone
  • Marques-Ibanez, David

Abstract

We find that certain bank characteristics—aggressive credit growth, less reliance on deposit funding, and size—prior to the 2007−2009 crisis are consistently related to the systemic dimensions of bank risk during the crisis. Exposures to real estate play a major role explaining this relationship: Banks with larger real estate betas exhibited higher levels of systemic risk during the crisis. The impact of real estate betas on systemic risk increases for larger banks, following aggressive credit growth policies in the presence of housing bubbles. We show that the relationship between bank characteristics and risk could also be detected using measures of systemic risk calculated prior to the financial crisis.

Suggested Citation

  • Altunbas, Yener & Manganelli, Simone & Marques-Ibanez, David, 2017. "Realized bank risk during the great recession," Journal of Financial Intermediation, Elsevier, vol. 32(C), pages 29-44.
  • Handle: RePEc:eee:jfinin:v:32:y:2017:i:c:p:29-44
    DOI: 10.1016/j.jfi.2017.08.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042957317300499
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jordà, Òscar & Schularick, Moritz & Taylor, Alan M., 2015. "Betting the house," Journal of International Economics, Elsevier, vol. 96(S1), pages 2-18.
      • Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2014. "Betting the House," NBER Chapters,in: NBER International Seminar on Macroeconomics 2014, pages 2-18 National Bureau of Economic Research, Inc.
    2. Gary B. Gorton, 2012. "Some Reflections on the Recent Financial Crisis," NBER Working Papers 18397, National Bureau of Economic Research, Inc.
    3. Gropp, Reint & Mosk, Thomas & Ongena, Steven & Wix, Carlo, 2016. "Bank response to higher capital requirements: Evidence from a quasi-natural experiment," SAFE Working Paper Series 156, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 1065-1188, November.
    6. Berger, Allen N. & Bouwman, Christa H.S., 2013. "How does capital affect bank performance during financial crises?," Journal of Financial Economics, Elsevier, vol. 109(1), pages 146-176.
    7. Enrico Perotti & Lev Ratnovski & Razvan Vlahu, 2011. "Capital Regulation and Tail Risk," International Journal of Central Banking, International Journal of Central Banking, vol. 7(4), pages 123-163, December.
    8. Laeven, Luc & Majnoni, Giovanni, 2003. "Loan loss provisioning and economic slowdowns: too much, too late?," Journal of Financial Intermediation, Elsevier, vol. 12(2), pages 178-197, April.
    9. Huang, Rocco & Ratnovski, Lev, 2011. "The dark side of bank wholesale funding," Journal of Financial Intermediation, Elsevier, vol. 20(2), pages 248-263, April.
    10. Manthos D. Delis & Panagiotis K. Staikouras, 2011. "Supervisory Effectiveness and Bank Risk," Review of Finance, European Finance Association, vol. 15(3), pages 511-543.
    11. Rüdiger Fahlenbrach & Robert Prilmeier & René M. Stulz, 2016. "Why Does Fast Loan Growth Predict Poor Performance for Banks?," NBER Working Papers 22089, National Bureau of Economic Research, Inc.
    12. repec:hrv:faseco:33077921 is not listed on IDEAS
    13. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    14. repec:fip:fedhpr:y:2010:i:may:p:65-71 is not listed on IDEAS
    15. Charles W. Calomiris & Stephen H. Haber, 2015. "Fragile by Design: The Political Origins of Banking Crises and Scarce Credit," Economics Books, Princeton University Press, edition 1, number 10177-2, October.
    16. Enrico Perotti & Javier Suarez, 2011. "A Pigovian Approach to Liquidity Regulation," International Journal of Central Banking, International Journal of Central Banking, vol. 7(4), pages 3-41, December.
    17. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2017. "Measuring Systemic Risk," Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 2-47.
    18. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    19. Shleifer, Andrei & Vishny, Robert W., 2010. "Unstable banking," Journal of Financial Economics, Elsevier, vol. 97(3), pages 306-318, September.
    20. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
    21. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
    22. Markus Behn & Rainer Haselmann & Paul Wachtel, 2016. "Procyclical Capital Regulation and Lending," Journal of Finance, American Finance Association, vol. 71(2), pages 919-956, April.
    23. Claudio Borio & Mathias Drehmann, 2009. "Assessing the risk of banking crises - revisited," BIS Quarterly Review, Bank for International Settlements, March.
    24. Demirgüç-Kunt, Asli & Huizinga, Harry, 2010. "Bank activity and funding strategies: The impact on risk and returns," Journal of Financial Economics, Elsevier, vol. 98(3), pages 626-650, December.
    25. De Jonghe, Olivier, 2010. "Back to the basics in banking? A micro-analysis of banking system stability," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 387-417, July.
    26. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, January.
    27. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    28. Stolz, Stéphanie Marie & Wedow, Michael, 2010. "Extraordinary measures in extraordinary times: public measures in support of the financial sector in the EU and the United States," Occasional Paper Series 117, European Central Bank.
    29. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
    30. Joon‐Ho Hahm & Hyun Song Shin & Kwanho Shin, 2013. "Noncore Bank Liabilities and Financial Vulnerability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45, pages 3-36, August.
    31. Foos, Daniel & Norden, Lars & Weber, Martin, 2010. "Loan growth and riskiness of banks," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2929-2940, December.
    32. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
    33. Calem, Paul & Rob, Rafael, 1999. "The Impact of Capital-Based Regulation on Bank Risk-Taking," Journal of Financial Intermediation, Elsevier, vol. 8(4), pages 317-352, October.
    34. Asli Demirguc‐Kunt & Enrica Detragiache & Ouarda Merrouche, 2013. "Bank Capital: Lessons from the Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1147-1164, September.
    35. Rüdiger Fahlenbrach & Robert Prilmeier & René M. Stulz, 2012. "This Time Is the Same: Using Bank Performance in 1998 to Explain Bank Performance during the Recent Financial Crisis," Journal of Finance, American Finance Association, vol. 67(6), pages 2139-2185, December.
    36. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1449-1496.
    37. Deming Wu & Jiawen Yang & Han Hong, 2011. "Securitization and Banks’ Equity Risk," Journal of Financial Services Research, Springer;Western Finance Association, vol. 39(3), pages 95-117, June.
    38. Nikola Tarashev & Claudio Borio & Kostas Tsatsaronis, 2009. "The systemic importance of financial institutions," BIS Quarterly Review, Bank for International Settlements, September.
    39. Xin Huang & Hao Zhou & Haibin Zhu, 2012. "Systemic Risk Contributions," Journal of Financial Services Research, Springer;Western Finance Association, vol. 42(1), pages 55-83, October.
      • Xin Huang & Hao Zhou & Haibin Zhu, 2011. "Systemic risk contributions," BIS Papers chapters,in: Bank for International Settlements (ed.), Macroprudential regulation and policy, volume 60, pages 36-43 Bank for International Settlements.
    40. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731, August.
    41. Erkens, David H. & Hung, Mingyi & Matos, Pedro, 2012. "Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 389-411.
    42. Douglas W. Diamond & Raghuram G. Rajan, 2001. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 287-327, April.
    43. Luc Laeven & Lev Ratnovski & Hui Tong, 2014. "Bank Size and Systemic Risk," IMF Staff Discussion Notes 14/4, International Monetary Fund.
    44. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1," MPRA Paper 17452, University Library of Munich, Germany.
    45. Kim, Moshe & Kliger, Doron & Vale, Bent, 2003. "Estimating switching costs: the case of banking," Journal of Financial Intermediation, Elsevier, vol. 12(1), pages 25-56, January.
    46. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    47. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 307-362.
    48. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
    49. Martin Knaup & Wolf Wagner, 2012. "Forward-Looking Tail Risk Exposures at U.S. Bank Holding Companies," Journal of Financial Services Research, Springer;Western Finance Association, vol. 42(1), pages 35-54, October.
    50. Cebenoyan, A. Sinan & Strahan, Philip E., 2004. "Risk management, capital structure and lending at banks," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 19-43, January.
    51. Stolz, Stéphanie Marie & Wedow, Michael, 2010. "Extraordinary measures in extraordinary times: Public measures in support of the financial sector in the EU and the United States," Discussion Paper Series 1: Economic Studies 2010,13, Deutsche Bundesbank.
    52. HyunSong Shin, 2009. "Securitisation and Financial Stability," Economic Journal, Royal Economic Society, vol. 119(536), pages 309-332, March.
    53. Nijskens, Rob & Wagner, Wolf, 2011. "Credit risk transfer activities and systemic risk: How banks became less risky individually but posed greater risks to the financial system at the same time," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1391-1398, June.
    54. Jessen, Cathrine & Lando, David, 2015. "Robustness of distance-to-default," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 493-505.
    55. Viral V. Acharya, 2010. "Measuring systemic risk," Proceedings 1140, Federal Reserve Bank of Chicago.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Saqib Aziz & Michael Dowling & Jean-Jacques Lilti, 2016. "Bank Acquisitiveness and Financial Crisis Vulnerability," Post-Print halshs-01360952, HAL.
    2. Saqib Aziz & Michael Dowling & Jean-Jacques Lilti, 2016. "Bank Acquisitiveness and Financial Crisis Vulnerability," Post-Print hal-01393953, HAL.

    More about this item

    Keywords

    Bank risk; Bank characteristics; Real estate; Loan growth; Great recession;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    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:eee:jfinin:v:32:y:2017:i:c:p:29-44. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/622875 .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.