برگشت به اصول اولیه در بانکداری؟میکرو تجزیه و تحلیل ثبات سیستم بانکداری

This paper analyzes the relationship between banks’ divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks’ systemic risk exposures using extreme value analysis. Systemic banking risk is measured as the tail beta, which equals the probability of a sharp decline in a bank’s stock price conditional on a crash in a banking index. Subsequently, the impact of (the correlation between) interest income and the components of non-interest income on this risk measure is assessed. The heterogeneity in extreme bank risk is attributed to differences in the scope of non-traditional banking activities: non-interest generating activities increase banks’ tail beta. In addition, smaller banks and better-capitalized banks are better able to withstand extremely adverse conditions. These relationships are stronger during turbulent times compared to normal economic conditions. Overall, diversifying financial activities under one umbrella institution does not improve banking system stability, which may explain why financial conglomerates trade at a discount.

The subprime crisis reminds us that, notwithstanding a period of disintermediation, the banking sector remains a particularly important sector for the stability of the financial system. Moreover, disruptions in the smooth functioning of the banking industry tend to exacerbate overall fluctuations in output. Consequently, banking crises are associated with significant output losses. It follows that preserving banking sector stability is of the utmost importance to banking supervisors. That is, regulators are especially interested in the frequency and magnitude of extreme shocks to the system which threaten the smooth functioning (and ultimately the continuity) of the banking system. Banking sector supervisors and central banks’ main interest is to maintain and protect the value of their portfolio of banks in times of market stress. Thus it is interesting to study the factors contributing to the riskiness of the portfolio. In this spirit, an extensive literature2 reviews banking crises around the world, examining the developments leading up to the crises as well as policy responses. Initial research focussed on macro-prudential supervision and investigates the relationships between macro-economic conditions and banking system stability (see e.g. Demirgüc-Kunt and Detragiache, 1998 and Eichengreen and Rose, 1998). Subsequently, attention shifted towards the impact of the regulatory and institutional environment on banking crises (see e.g. Barth et al., 2004, Beck et al., 2006, Demirgüc-Kunt and Detragiache, 2002 and Houston et al., 2008). However, not all banks need to contribute equally to the risk profile of the supervisor’s portfolio and the stability of the banking system. Nevertheless, research that zooms in at the micro-level and aims to identify bank-specific characteristics of banking system stability is limited. Moreover, almost all evidence is based on analyzing the determinants of outright bank failures in the US (see e.g. González-Hermosillo, 1999 ; and the references in Appendix 1 of that paper; and Wheelock and Wilson, 2002). This paper investigates why some banks are better able to shelter themselves from the storm by analyzing the bank-specific determinants of individual banks’ contribution to systemic banking risk. Our research contributes to the banking literature in a number of ways. First, a crucial addition to the analysis is our measure of individual bank risk during extremely adverse economic conditions. More precisely, we estimate tail betas (Hartmann et al., 2006 and Straetmans et al., 2008) rather than analyzing actual defaults. Tail beta measures the probability of a crash in a bank’s stock conditional on a crash in a European banking sector stock price index. The choice of this measure is driven by two empirical stylized facts on banking panics. Historically, banking panics occurred when depositors initiated a bank run. In more recent periods, banks face a stronger disciplining role by stock market participants. As a consequence, equity and bond market signals are good leading indicators of bank fragility (Gropp et al., 2006). Therefore, we employ a market-based measure. In addition, Gorton, 1988 and Kaminsky and Reinhart, 1999 document that most banking panics have been related to systemic and macroeconomic fluctuations rather than ‘mass hysteria’ or self-fulfilling prophecies. Therefore, we look at the conditional rather than the unconditional probability of a crash in a bank’s stock price. By measuring the tail beta for all listed European banks over different time periods we document the presence of substantial cross-sectional heterogeneity and time variation in the tail betas of European banks. Second, we contribute to the debate on the scope of financial firms by analyzing the impact of revenue diversity on banking system stability. In recent years, one of the major developments in the banking industry has been the dismantling of the legal barriers to the integration of distinct financial services and the subsequent emergence of financial conglomerates. In Europe, the Second banking Directive of 1989 allowed banks to combine banking, insurance and other financial services under a single corporate umbrella. Similar deregulating initiatives took place in the US by means of the Gramm–Leach–Bliley Act of 1999. These deregulations resulted in an expansion in the variety of activities and financial transactions in which banks engaged. Most of the existing research addressing the issue of the economies of scope in financial corporations takes an industrial organization approach and analyzes whether financial conglomerates create or destroy value (see e.g. Laeven and Levine, 2007 and Schmid and Walter, 2009). Recent studies also analyze whether functional diversification reduces bank risk by investigating functional diversification from a portfolio perspective (see e.g. Baele et al., 2007 and Stiroh, 2006). We contribute to the empirical literature on revenue diversity of financial corporations by addressing a third perspective, that of financial stability. Our results establish that the shift to non-traditional banking activities, which generate commission, trading and other non-interest income, increases banks’ tail betas and thus reduces banking system stability. Interest income is less risky than all other revenue streams. Other indicators of bank specialization in traditional intermediation, such as a higher interest margin or higher loans-to-asset ratio, corroborate the finding that traditional banking activities result in lower systemic banking risk. This questions the usefulness of financial conglomeration as a risk diversification device, at least in times of stock market turmoil. The results are consistent with the theoretical predictions of Wagner (in press) that even though diversification may reduce each bank’s probability of default, it makes systemic crises more likely. However, we also document that the extent to which shocks to the various income shares are correlated matters for overall and extreme bank risk. Third, we attribute a substantial degree of the time and cross-sectional heterogeneity to other bank-specific characteristics. The variables we include capture the constituents of the CAMEL rating methodology, i.e. Capital adequacy, Asset quality, Management quality, Earnings, Liquidity. Appendix 1 of Gonzalez-Hermosillo (1999) provides an interesting overview of the variables used in selected empirical studies on US bank failures and also classifies these according to the constituents of the CAMEL rating. Wheelock and Wilson (2002) use similar variables to analyze why banks disappear. Smaller banks and well-capitalized banks contribute significantly to a safer banking system. In terms of economic impact, the latter results are somewhat larger than the gains from focussing on the traditional intermediation activities. Finally, we show that the focus on extreme bank risk and banking system stability provides insights supplementary to the existing evidence on banks’ riskiness in normal economic conditions. The information content of tail betas differs from measures focussing on central dependence or composite risk measures (such as long-term debt ratings or equity return volatility). We obtain, for instance, that higher capital buffers work best when they are needed the most, i.e. in times of stress. The following section reviews relevant literature on banking system stability, the risk-taking incentives of financial conglomerates and the impact of revenue diversity on bank risk. In Section 3, we discuss the sample composition. The next section describes the methodology to measure banks’ tail betas. The subsequent section, Section 5, is divided into three subsections. The first subsection introduces the results for the drivers of heterogeneity in systemic banking risk. In a panel set-up, we relate the tail betas to different types of financial revenues and other bank-specific variables. While these issues are always important, the magnitude of the recent financial crisis renews interest in these questions. The second subsection documents that the information content of the tail beta differs significantly from the information contained in central dependence measures (such as the traditional OLS beta between bank stock returns and returns on a banking index). Section 5.4. deals with refinements on the panel data set-up and robustness of the baseline regression. We show that the results are not driven by reverse causality or particular events (such as M&As, IPOs, delisting or banking crises) that may create a sample selection bias. Furthermore, we scrutinize the impact of composite risk measures (such as ratings or volatility) on the tail beta as well as control for the stability of the results in subsamples based on bank size. Section 6 concludes with policy implications.

The banking sector occupies a central role in every economy and is a particularly important sector for the stability of financial systems. As a result, central bankers and financial supervisors invest a great deal of resources in analyzing how to strengthen the financial system, including the system of financial regulation and supervision, to reduce the frequency and severity of future bouts of financial instability. Reliable indicators of banking system stability are of the utmost importance. In this paper, we employ a recent approach to assess banking system risk (Hartmann et al., 2006). This statistical approach assesses the joint occurrence of very rare events, such as severe banking problems. More specifically, the bank-specific systemic risk measure captures the probability of a sharp decline in a bank’s stock price conditional on a crash in a European banking sector index. We discover considerable heterogeneity in banks’ contributions to overall banking sector stability. This observation should not be surprising in light of some remarkable developments over the last decades. Substantial banking consolidation, the dismantling of the legal barriers to the integration of financial services, and technological evolution all affected the organizational design of banking firms. These developments initiated the emergence of large and complex banking organizations. Yet some banks continue to specialize in traditional intermediation activities or target local customers. When relating the tail betas to bank-specific accounting variables, we can explain a fair amount of the cross-sectional dispersion in extreme bank risk. We establish that the shift to non-traditional banking activities increases banks’ tail betas and thus reduces banking system stability because interest income is less risky than all other revenue streams. Moreover, the impact of the alternative revenue shares (commission and fee income, trading income, other operating income) does differ substantially from one another. Other indicators of bank specialization in traditional intermediation, such as the net interest margin and the loans-to-assets ratio, corroborate the finding that traditional banking activities are less risky. Hence, we can conclude that banks that profitably focus on lending activities contribute more to banking system stability than diversified banks. This questions the usefulness of financial conglomeration as a risk diversification device, at least in times of stock market turmoil. Retail banks, with a relatively high proportion of core deposits and loans in total assets, have a consistently lower systemic risk exposure. Moreover, as long as capital regulation or deposit insurance premiums fail to include a premium for systematic risk, banks will have an incentive to take extreme systematic risks by engaging in non-interest activities. The established relationships bear implications for bank supervision. Bank size is by far the most significant driver of banks’ tail betas. Some particularly thorny issues are raised by the existence of financial institutions that may be perceived as “too big to fail” and the moral hazard issues that may arise when governments intervene in a financial crisis. The latter could be perceived as an implicit expansion of the safety net and may exacerbate the problem of “too big to fail”, possibly resulting in excessive risk-taking and still greater systemic risk in the future. Moreover, since the large banks are more exposed to European-wide (banking) shocks and economic conditions, their prudential supervision needs to take that feature into account. In Europe, increasing banking sector integration initiated by directives that led to the single market for financial services further complicated the tasks of national and supranational supervisors. This will be even more the case when banks further increase their cross-border activities, which strengthens the need for an integrated European supervisor for internationally operating banks. For the locally operating banks, supervision at the country level should suffice to assess the implications of their risk profile. In addition, the results are interesting in light of the third pillar of Basel II. Market participants, in addition to armies of regulators, will do some of the work in assessing the overall risk position of the bank. A larger capital buffer decreases a bank’s exposure to extreme shocks. This finding is expected and underlines the importance of capital adequacy as a signal of bank creditworthiness. Furthermore, a more complete and coherent disclosure of the different revenue streams facilitates a better understanding of the risks being taken by different institutions. The debate on the optimality and desirability of universal banking and financial conglomerates is still unsettled. Some blame the recent banking crisis of 2008 on a lack of regulation of certain financial activities or even deregulation with respect to the combination of commercial and investment banking. While it is unknown to what extent the crisis could have been avoided by more regulation, more disclosure and transparency of the different financial activities and the associated revenue streams would have helped in mitigating, identifying, and resolving many problems. Therefore, in European banking, steps need to be taken in order to get a more detailed and consistent picture of the underlying components of non-interest revenue, especially with respect to commission and fee income. The US reporting requirements, which since March 2001 include a 12-item distinction of non-interest income, may be a useful benchmark.