Credit Risk Management and US Bank-Holding Companies: An Empirical Investigation

Kudret Topyan (), Chia-Jane Wang, Natalia Boliari and Carlos Elias
Additional contact information
Kudret Topyan: O’Malley School of Business, Manhattan College, Bronx, NY 10471, USA
Chia-Jane Wang: O’Malley School of Business, Manhattan College, Bronx, NY 10471, USA
Natalia Boliari: O’Malley School of Business, Manhattan College, Bronx, NY 10471, USA
Carlos Elias: O’Malley School of Business, Manhattan College, Bronx, NY 10471, USA

JRFM, 2024, vol. 17, issue 2, 1-11

Abstract: This paper empirically evaluates the impact of ownership structure on the cost of credit in US banks. It does so by comparing their grouped option-adjusted credit spreads on the outstanding debt issues. As the overall risk of the creditors is reflected in the yield spread of the firms’ outstanding bonds, separately classifying bank-holding companies and stand-alone banks and controlling risk ratings, maturities, and issue sizes enables us to compare the yield spreads tied to ownership structure. After computing the option-adjusted yield spreads of outstanding operating and holding company bonds, we used these values in a master regression equation to test the statistical and economic significance of the binary variable separating the option-adjusted spreads of the two sets. Our work finds that when the S&P ranks and maturities are controlled, US bank-holding companies finances with higher cost of credit compared with stand-alone banks, although holding companies add a layer of liability protection due to the legal separation between the assets and the owners. This suggests that certain characteristics of US bank-holding companies, such as higher leverage and higher systematic risk levels, make them riskier compared with traditional stand-alone banks, offsetting the benefits of forming a holding company.

Keywords: bond yield spread; US bank-holding company; leverage; option-adjusted spread; cost of credit (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/17/2/56/pdf (application/pdf)
https://www.mdpi.com/1911-8074/17/2/56/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:17:y:2024:i:2:p:56-:d:1330612

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().