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Banking business models and the nature of financial crisis

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  • Hryckiewicz, Aneta
  • Kozłowski, Łukasz

Abstract

In our paper, we analyze heterogeneity among the various business models that incorporate systemically important banks in 65 countries over the period of 2000–2012. For the first time, we identify true banking strategies in a portfolio context, that is, consisting of various combinations of bank assets and funding sources. Next, we estimate the way distinct strategies have affected bank profitability and risk before the crisis, as well as their impact on the mortgage crisis. We demonstrate that during the mortgage crisis, the investment model indicated the lowest individual risk and highest systemic risk simultaneously. Consequently, we document that the funding structure was responsible for the systemic effect of the mortgage crisis. Further, we demonstrate that countries with systemically important banks that rely on investment activities experience a greater, but more short-lived decline in GDP, when compared to countries that have predominantly traditional banking activities.

Suggested Citation

  • Hryckiewicz, Aneta & Kozłowski, Łukasz, 2017. "Banking business models and the nature of financial crisis," Journal of International Money and Finance, Elsevier, vol. 71(C), pages 1-24.
  • Handle: RePEc:eee:jimfin:v:71:y:2017:i:c:p:1-24
    DOI: 10.1016/j.jimonfin.2016.10.008
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    Cited by:

    1. Götz, Martin & Krahnen, Jan Pieter & Tröger, Tobias, 2017. "Five years after the Liikanen Report: What have we learned?," SAFE White Paper Series 50, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    2. repec:pal:jbkreg:v:20:y:2019:i:2:d:10.1057_s41261-018-0080-5 is not listed on IDEAS

    More about this item

    Keywords

    Bank risk; Business model; Bank regulation; Financial crisis; Banking stability; Systemic risk;

    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

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