Bank Risk: Does Size Matter?

25 Pages Posted: 28 Nov 2011

See all articles by Robert J. Powell

Robert J. Powell

Edith Cowan University - School of Accounting, Finance and Economics; Financial Research Network (FIRN)

Akhmad Kramadibrata

Edith Cowan University - School of Accounting, Finance and Economics

David E. Allen

School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN); Department of Finance; School of Business and Law, Edith Cowan University

Abhay Kumar Singh

Edith Cowan University

Date Written: November, 27 2011

Abstract

The size of banks is examined as a determinant of bank risk. A wide range of banks are examined across four regions, including Australia, Canada, Europe and the USA. Four risk metrics are considered including Value at Risk (VaR), Conditional Value at Risk (CVaR, which measures risk beyond VaR), Probability of Default (PD) using Merton structural methodology, and Conditional Probability of Default (CPD, the author’s own model which measures risk based on extreme asset value fluctuations. Daily equity and asset value fluctuations are included in the analysis, including pre-GFC and GFC periods. In addition to examining size in isolation as a determinant of bank risk, the paper uses fixed effects panel data regression to examine the significance of size as a risk determinant in conjunction with a range of other independent variables. The study finds mixed results among the four regions with no conclusive evidence of significant association between size and risk.

Keywords: Bank Risk, Value at Risk, Conditional Value at Risk, Probability of Default, Conditional Probability of Default

JEL Classification: G01, G21, G28

Suggested Citation

Powell, Robert J. and Kramadibrata, Akhmad and Allen, David Edmund and Singh, Abhay Kumar, Bank Risk: Does Size Matter? (November, 27 2011). Available at SSRN: https://ssrn.com/abstract=1965283 or http://dx.doi.org/10.2139/ssrn.1965283

Robert J. Powell (Contact Author)

Edith Cowan University - School of Accounting, Finance and Economics ( email )

Joondalup Campus
Perth
Joondalup 6027, WA
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Akhmad Kramadibrata

Edith Cowan University - School of Accounting, Finance and Economics ( email )

270 Joondalup Drive
Joondalup, WA g027
Australia
+61 8 6304 5265 (Phone)

David Edmund Allen

School of Mathematics and Statistics, The University of Sydney ( email )

School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia

HOME PAGE: http://www.maths.usyd.edu.au

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Department of Finance ( email )

Taiwan
Taiwan

School of Business and Law, Edith Cowan University

100 Joondalup Drive
Joondalup, WA 6027
Australia

HOME PAGE: http://www.dallenwapty.com

Abhay Kumar Singh

Edith Cowan University ( email )

Joondalup Drive
Perth
Joondalup, WA 6027
Australia

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