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We present a model where bank assets are a portfolio of risky debt claims and analyze stockholders' risk-taking behavior while considering the strategic interaction between debtors and creditors. We find that: (1) as the leverage of a bank increases, risk shifting by borrowers increases, even if...
Persistent link: https://www.econbiz.de/10012902255
Bilateral derivatives valuation is subject to counterparty credit risk (CCR) in that a counterparty could jump to default or its credit spread could vary over time. In the nomenclature of risk management, the former is called CCR exposure and the later leads to credit valuation adjustment (CVA)....
Persistent link: https://www.econbiz.de/10012898160
This paper tests the effect of the establishment of risk management committee on bank risk, bank loan performance and bank value. The Dodd Frank Act of 2010 provides us with quasi-experimental variation on risk management committee establishment that facilitates identification. I present two...
Persistent link: https://www.econbiz.de/10012822447
We study insolvency cascades in an interbank system when banks are allowed to insure their loans with credit default swaps (CDS) sold by other banks. We show that, by properly shifting financial exposures from one institution to another, a CDS market can be designed to rewire the network of...
Persistent link: https://www.econbiz.de/10012855794
This paper evaluates the model risk of models used for forecasting systemic and market risk. Model risk, which is the potential for different models to provide inconsistent outcomes, is shown to be increasing with market uncertainty. During calm periods, the underlying risk forecast models...
Persistent link: https://www.econbiz.de/10012973321
We explore a long standing prediction in the international business literature that managers' subjective perceptions of political risk – not just the level of risk – are important for how firms manage political risk. The importance attributed to political risk by corporate executives has...
Persistent link: https://www.econbiz.de/10012987988
This paper examines the major causes of Silicon Valley Bank’s (SVB) collapse in March 2023 from a regulatory and risk management perspective. Using SVB Financial Group’s 10-K filings, we show that the economic value of equity pointed to excessive interest rate risks in SVB’s balance sheet...
Persistent link: https://www.econbiz.de/10014351168
This paper assesses whether Basel III was necessary and would be able to bring about prudent risk behaviour among banks. Basel III aimed at setting new global standards to address both firm specific and general systemic risks by raising the quality of capital to position banks to better absorb...
Persistent link: https://www.econbiz.de/10013129168
Regulation may impact on financial risk taking by financial intermediaries by way of the decision-making process envisaged in the various possible legal structures set forth by the law. In Europe there are three different possible board structures: the one-tier board system, typical of the UK,...
Persistent link: https://www.econbiz.de/10013135964
Persistent link: https://www.econbiz.de/10013138295