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Systemic risk and bank business models

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  • Maarten van Oordt
  • Chen Zhou

Abstract

In this paper, we decompose banks' systemic risk into two dimensions: the risk of a bank (“bank tail risk”) and the link of the bank to the system in financial distress (“systemic linkage”). Based on extreme value theory, we estimate a systemic risk measure that can be decomposed into two subcomponents reflecting these dimensions. Empirically, we assess the relationships of bank business models to the two dimensions of systemic risk. The observed differences in these relationships partly explain why micro‐ and macroprudential perspectives sometimes have different implications for banking regulation.

Suggested Citation

  • Maarten van Oordt & Chen Zhou, 2019. "Systemic risk and bank business models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(3), pages 365-384, April.
  • Handle: RePEc:wly:japmet:v:34:y:2019:i:3:p:365-384
    DOI: 10.1002/jae.2666
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Frederik Mergaerts & Rudi Vander Vennet, 2015. "Business Models And Their Impact On Bank Performance: A Long-Term Perspective," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 15/908, Ghent University, Faculty of Economics and Business Administration.
    2. Mergaerts, Frederik & Vander Vennet, Rudi, 2016. "Business models and bank performance: A long-term perspective," Journal of Financial Stability, Elsevier, vol. 22(C), pages 57-75.
    3. Elien Meuleman & Rudi Vander Vennet, 2019. "Macroprudential Policy And Bank Systemic Risk," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 19/971, Ghent University, Faculty of Economics and Business Administration.
    4. Maarten van Oordt & Chen Zhou, 2015. "Systemic risk of European banks: Regulators and markets," DNB Working Papers 478, Netherlands Central Bank, Research Department.
    5. Giuliana Birindelli & Paola Ferretti & Marco Savioli, 2016. "Basel 3: Does One Size Really Fit All Banks' Business Models?," Working Paper series 16-20, Rimini Centre for Economic Analysis.
    6. Martien Lamers & Frederik Mergaerts & Elien Meuleman & Rudi Vander Vennet, 2019. "The Tradeoff between Monetary Policy and Bank Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 15(2), pages 1-42, June.
    7. Cameron MacDonald & Maarten van Oordt & Robin Scott, 2016. "Implementing Market-Based Indicators to Monitor Vulnerabilities of Financial Institutions," Staff Analytical Notes 16-5, Bank of Canada.
    8. repec:pal:jbkreg:v:20:y:2019:i:2:d:10.1057_s41261-018-0080-5 is not listed on IDEAS
    9. Maarten van Oordt, 2018. "Calibrating the Magnitude of the Countercyclical Capital Buffer Using Market-Based Stress Tests," Staff Working Papers 18-54, Bank of Canada.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • 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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