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Realized Bank Risk during the Great Recession

Author

Listed:
  • Altunbas, Yener

    (Bangor Business School)

  • Manganelli, Simone

    (European Central Bank)

  • Marques-Ibanez, David

    () (Board of Governors of the Federal Reserve System (U.S.))

Abstract

In the years preceding the 2007-2009 financial crisis, forward-looking indicators of bank risk concentrated and suggested unusually low expectations of bank default. We assess whether the ex-ante (i.e. prior to the crisis) cross-sectional variability in bank characteristics is related to the ex-post (i.e. during the crisis) materialization of bank risk. Our tailor-made dataset crucially accounts for the different dimensions of realized bank risk including access to central bank liquidity during the crisis. We consistently find that less reliance on deposit funding, more aggressive credit growth, larger size and leverage were associated with larger levels of realized risk. The impact of these characteristics is particularly relevant for capturing the systemic dimensions of bank risk and tends to become stronger for the tail of the riskier banks. The majority of these characteristics also predicted bank risk as materialized before the financial crisis.

Suggested Citation

  • Altunbas, Yener & Manganelli, Simone & Marques-Ibanez, David, 2015. "Realized Bank Risk during the Great Recession," International Finance Discussion Papers 1140, Board of Governors of the Federal Reserve System (U.S.), revised 05 Oct 2015.
  • Handle: RePEc:fip:fedgif:1140
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    Cited by:

    1. Saqib Aziz & Michael Dowling & Jean-Jacques Lilti, 2016. "Bank Acquisitiveness and Financial Crisis Vulnerability," Post-Print halshs-01360952, HAL.
    2. repec:onb:oenbfi:y:2019:i:q3/19:b:5 is not listed on IDEAS
    3. Saqib Aziz & Michael Dowling & Jean-Jacques Lilti, 2016. "Bank Acquisitiveness and Financial Crisis Vulnerability," Post-Print hal-01393953, HAL.
    4. repec:kap:jfsres:v:56:y:2019:i:1:d:10.1007_s10693-019-00310-y is not listed on IDEAS
    5. Yener Altunbaş & John Thornton & Yurtsev Uymaz, 2019. "Money laundering and bank risk: evidence from US banks," Working Papers 19005, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    6. repec:eee:jbfina:v:99:y:2019:i:c:p:222-236 is not listed on IDEAS

    More about this item

    Keywords

    Bank risk; business models; Great Recession;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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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