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The Impact of the Identification of GSIBs on their Business Model

Aurélien Violon, Dominique Durant and Oana Toader ()

Débats économiques et financiers from Banque de France

Abstract: Most research papers dealing with systemic footprint in the banking system either investigate the definition and the measure of systemic risk, or try to identify systemic banks and to calibrate the systemic risk buffers. To the best of our knowledge, this paper is among the first to provide empirical evidence on how the recent international regulation designed for global systemically important banks (GSIBs) drove changes on these institutions’ activity. Our data consists of cross-section observations for 97 large international banks from 22 countries from 2005 to 2016 (12 years). Our econometric approach quantifies the impact of the FSB designation on GSIBs’ activity, controlling for both structural differences between GSIBs and non-GSIBs and structural evolutions of the banking system over time (industry trends). We find that GSIBs have curbed downward the expansion of their total balance sheet after the FSB designation, which resulted in an additional improvement of their leverage ratio. In turn, a sizeable downward pressure is noticed on their return on equity (ROE). However, no adverse consequences can be observed on risk-taking and issuance of loans to the economy. Finally, while the relative deleveraging experienced by GSIBs illustrates a mean-reverting process, tending to close the structural gap between GSIBs and non-GSIBs, this is not the case for the cost of their deposits, which remains lower than the one of other banks, tending to prove that the GSIB framework has not so far put an end to the “too-big-to-fail” distortions.

Keywords: GSIBs; business model; profitability; leverage; RWA. (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-rmg
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:decfin:33

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