The role of bank funding in systematic risk transmission

Cherry Muijsson and Stephen Satchell

Finance Research Letters, 2020, vol. 33, issue C

Abstract: The transmission of risk among financial institutions is not limited to systematic risk and interest rate factors, but is also affected by the interconnectedness of institutions through balance sheet exposures. It is recognized that univariate specifications have severe limitations in explaining banks observed performance and measurement of risk, and may obscure possible unintended effects of bank capital regulation. Consequently, we link systematic risk to balance sheet factors and allow for dependencies in the covariance structure. We find that funding structure and balance sheet factors asymmetrically affect observed systematic risk in the largest Australian banks.

Keywords: Systematic risk; Balance sheet risk; Multivariate analysis (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:33:y:2020:i:c:s1544612319300157

DOI: 10.1016/j.frl.2019.06.020

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