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Peer-Group Detection of Banks and Resilience to Distress

Listed author(s):
  • Andrea Flori

    ()

    (IMT School for advanced studies)

  • Simone Giansante

    ()

    (School of management, University of Bath)

  • Fabio Pammolli

    ()

    (Politecnico di Milano)

The paper looks at the importance of the true business model in shaping the risk profile of financial institutions. We adopt a novel indirect clustering approach to enrich the classic bank business model classification on a global data set including about 11,000 banks, both listed and non-listed representing more than 180 countries over the period 2005-2014. A comprehensive list of global distress events, which combines bankruptcies, liquidations, defaults, distressed mergers, and public bailouts, is regressed against financial statement ratios (i.e. proxies for CAMELS) and controlling for macro and sectoral effects using a rare-event logit model. Our findings suggest that individual characteristics along with macro and sectoral factors contribute differently, sometimes with opposite sign, to the likelihood of distress and to the volatility of business models with the exception of liquidity whose contribution appears exogenous to business model choice. By capturing the switching behaviour across groups, we find that business model volatility exacerbates vulnerability and distress, especially if moving from wholesale-oriented to deposit oriented groups.

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File URL: http://eprints.imtlucca.it/3608/1/EIC_WP_6_2016.pdf
File Function: First version, 2016
Download Restriction: no

Paper provided by IMT Institute for Advanced Studies Lucca in its series Working Papers with number 06/2016.

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Length: 85
Date of creation: Dec 2016
Date of revision: Dec 2016
Publication status: published in EIC working paper series
Handle: RePEc:ial:wpaper:6/2016
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Web page: http://eprints.imtlucca.it/

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  1. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises; The Good, the Bad, and the Ugly," IMF Working Papers 10/146, International Monetary Fund.
  2. Rebel Cole & Lawrence White, 2012. "Déjà Vu All Over Again: The Causes of U.S. Commercial Bank Failures This Time Around," Journal of Financial Services Research, Springer;Western Finance Association, vol. 42(1), pages 5-29, October.
  3. Anand, Kartik & Gai, Prasanna & Kapadia, Sujit & Brennan, Simon & Willison, Matthew, 2013. "A network model of financial system resilience," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 219-235.
  4. Gorton, Gary B., 2010. "Slapped by the Invisible Hand: The Panic of 2007," OUP Catalogue, Oxford University Press, number 9780199734153.
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  7. Flannery, Mark J, 1998. "Using Market Information in Prudential Bank Supervision: A Review of the U.S. Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 273-305, August.
  8. 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.
  9. Jin, Justin Yiqiang & Kanagaretnam, Kiridaran & Lobo, Gerald J., 2011. "Ability of accounting and audit quality variables to predict bank failure during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2811-2819, November.
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  13. Rungporn Roengpitya & Nikola Tarashev & Kostas Tsatsaronis, 2014. "Bank business models," BIS Quarterly Review, Bank for International Settlements, December.
  14. repec:hrv:faseco:33077925 is not listed on IDEAS
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  16. Arvind Krishnamurthy, 2010. "Amplification Mechanisms in Liquidity Crises," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 1-30, July.
  17. Vincenzo Chiorazzo & Carlo Milani & Francesca Salvini, 2008. "Income Diversification and Bank Performance: Evidence from Italian Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 33(3), pages 181-203, June.
  18. repec:eee:rujoec:v:1:y:2015:i:4:p:359-385 is not listed on IDEAS
  19. Samuel Bentolila & Pierre Cahuc & Juan J. Dolado & Thomas Le Barbanchon, 2012. "Two‐Tier Labour Markets in the Great Recession: France Versus Spain-super-," Economic Journal, Royal Economic Society, vol. 122(562), pages 155-187, 08.
  20. Bongini, Paola & Nieri, Laura & Pelagatti, Matteo, 2015. "The importance of being systemically important financial institutions," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 562-574.
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