Tail Risk at Banks

23 Pages Posted: 18 Dec 2009 Last revised: 14 Dec 2013

See all articles by Martin Knaup

Martin Knaup

CentER, Tilburg University

Wolf Wagner

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Centre for Economic Policy Research (CEPR)

Date Written: December 15, 2009


In order to address the risk of systemic crises it is of paramount importance to have advance information about banks' exposures to large (negative) shocks. In this paper we develop a simple method for quantifying such exposures in a forward-looking manner. The method is based on estimating banks' share prices sensitivities to (market) put options and does not require the actual observation of tail risk events. Interestingly, we find that estimated tail risk exposures for U.S. Bank Holding Companies are negatively correlated with their share price beta, suggesting that banks which appear safer in normal periods are actually more crisis prone. We also study the determinants of banks' tail risk exposures and find that their key drivers are uninsured deposits and non-traditional activities that leave assets on banks' balance sheets.

Keywords: tail risk, forward looking, banks, systemic crisis

JEL Classification: G21, G28

Suggested Citation

Knaup, Martin and Wagner, Wolf, Tail Risk at Banks (December 15, 2009). Available at SSRN: https://ssrn.com/abstract=1523894 or http://dx.doi.org/10.2139/ssrn.1523894

Martin Knaup

CentER, Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE

HOME PAGE: http://center.uvt.nl/phd_stud/knaup/

Wolf Wagner (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics