Brazilian banks risk-taking and systemic risk

Bruna Gonçalves Fonseca Moura, Bruno Pérez Ferreira and Ana Carolina Costa Corrêa

The Quarterly Review of Economics and Finance, 2024, vol. 98, issue C

Abstract: This study analyzes the marginal contribution of Brazilian banks to the systemic risk. The objective is to identify whether banks that share common characteristics similarly contribute to systemic financial shocks. First, the risk assumed by a sample of listed banks is measured from the accounting, market, and regulatory perspectives. Sample banks were segregated using an unsupervised clustering model. The results were compared with the methodology currently used by the Central Bank of Brazil to segment the banking institutions. Finally, we evaluate the banking groups’ marginal contribution to systemic financial risk using ΔCoVaR. These results suggest that institutions that share similar characteristics in relation to their risk profiles behave similarly during times of greater market stress. Notably, size, geographic diversification, and liquidity were common attributes among banks contributing significantly to systemic risk during financial crises. This study advances the field of banking finance by introducing an analytical framework that goes beyond the traditional focus on bank balance sheet size, aligning with international standards for evaluating the systemic importance of financial institutions.

Keywords: Banking risk financial regulation; Risk measures in banks; Banking risk-taking; Systemic financial risk (search for similar items in EconPapers)
JEL-codes: E58 G18 G21 G28 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:98:y:2024:i:c:s1062976924001194

DOI: 10.1016/j.qref.2024.101913

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