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Systemic risk and bank business models

Author

Listed:
  • Maarten van Oordt
  • Chen Zhou

Abstract

In this study we disentangle two dimensions of banks' systemic risk: the level of bank tail risk and the linkage between a bank's tail risk and severe shocks in the financial system. We employ a measure of the systemic risk of financial institutions that can be decomposed into two subcomponents reflecting these dimensions. Empirically, we show quantitatively how bank characteristics are related to bank tail risk and systemic linkage. The interrelationship between bank characteristics and these dimensions determine the relation between bank characteristics and systemic risk. Certain characteristics that are irrelevant to the soundness of a financial institution taken in isolation turn out to be important for the level of systemic risk, and vice versa. Our analytical framework helps to evaluate differences in direction and scope of policy under the micro- and macro-prudential objectives of regulation.

Suggested Citation

  • Maarten van Oordt & Chen Zhou, 2014. "Systemic risk and bank business models," DNB Working Papers 442, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:442
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. Maarten van Oordt & Chen Zhou, 2015. "Systemic risk of European banks: Regulators and markets," DNB Working Papers 478, Netherlands Central Bank, Research Department.
    3. 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.
    4. 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.
    5. 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.
    6. repec:pal:jbkreg:v:20:y:2019:i:2:d:10.1057_s41261-018-0080-5 is not listed on IDEAS
    7. 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.
    8. 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.
    9. 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.

    More about this item

    Keywords

    Financial institutions; financial stability; tail risk; macroprudential regulation; non-interest income;

    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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