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Charter value and bank stability before and after the global financial crisis of 2007-2008 Charter value and bank stability before and after the global financial crisis of 2007-2008

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  • Yassine Bakkar

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges)

  • Clovis Rugemintwari

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges)

  • Amine Tarazi

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges)

Abstract

We investigate how bank charter value affects risk for a sample of OECD banks by using standalone and systemic risk measures before, during, and after the global financial crisis of 2007-2008. Prior to the crisis, bank charter value is positively associated with risk-taking and systemic risk for very large " too-big-too-fail " banks and large U.S. and European banks but such a relationship is inverted during and after the crisis. A deeper investigation shows that such a behavior before the crisis is mostly relevant for very large banks and large banks with high growth strategies. Banks' business models also influence this relationship. In presence of strong diversification strategies, higher charter value increases standalone risk for very large banks. Conversely, for banks following a focus strategy, higher charter value amplifies systemic risk for very large banks and both standalone and systemic risk for large U.S. and European banks. Our findings have important policy implications and cast doubts on the relevance of the uniform more stringent capital requirements introduced by Basel III.

Suggested Citation

  • Yassine Bakkar & Clovis Rugemintwari & Amine Tarazi, 2017. "Charter value and bank stability before and after the global financial crisis of 2007-2008 Charter value and bank stability before and after the global financial crisis of 2007-2008," Working Papers hal-01337601, HAL.
  • Handle: RePEc:hal:wpaper:hal-01337601
    Note: View the original document on HAL open archive server: https://hal-unilim.archives-ouvertes.fr/hal-01337601v2
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    References listed on IDEAS

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    Keywords

    Systemic risk; Standalone risk; Charter value; Bank strategies; Too-big-too-fail; Global; financial crisis; Bank regulation;

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