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

Yassine Bakkar, Clovis Rugemintwari and Amine Tarazi
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Yassine Bakkar: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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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.

Keywords: Systemic risk; Standalone risk; Charter value; Bank strategies; Too-big-too-fail; Global; financial crisis; Bank regulation (search for similar items in EconPapers)
Date: 2017-01-23
New Economics Papers: this item is included in nep-ban, nep-eec and nep-rmg
Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-01337601v2
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Working Paper: 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 (2019)
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