Ratings Uplifts and Bank Characteristics in the Eurozone 2002-2011

23 Pages Posted: 23 Aug 2013

See all articles by Mark Dijkstra

Mark Dijkstra

Utrecht University - Utrecht School of Economics

Date Written: August 22, 2013

Abstract

This paper explores which characteristics define banks that are too-big-to-fail in the Eurozone over the period 2002-2011. These banks are identified through ratings uplift data from Moody’s. Higher ratings uplifts are associated with higher degrees of interest income and lower degrees of commission income. Banks with higher ratings uplifts pursue riskier strategies by financing themselves with less equity and holding higher loan loss provisions. The relationship between asset size and ratings uplifts is shaped as an inverted U that peaks around €200 billion in assets. Furthermore, banks with higher ratings uplifts are less profitable, although this result is not robust over all specifications. Country level variables such as concentration and financial system size are not significant over most specifications, although countries with a better ICT infrastructure contain banks with higher ratings uplifts. This paper is complementary to Dijkstra (2013), where ratings uplifts are used as an explanatory variable to estimate economies of scale in banking rather than the dependent variable.

Keywords: banking, too big to fail, ratings uplift, relationship banking, implicit subsidy

JEL Classification: G21, G28, H81

Suggested Citation

Dijkstra, Mark, Ratings Uplifts and Bank Characteristics in the Eurozone 2002-2011 (August 22, 2013). Amsterdam Law School Research Paper No. 2013-45; Amsterdam Center for Law & Economics Working Paper No. 2013-12. Available at SSRN: https://ssrn.com/abstract=2314366 or http://dx.doi.org/10.2139/ssrn.2314366

Mark Dijkstra (Contact Author)

Utrecht University - Utrecht School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands
+31302531617 (Phone)

HOME PAGE: http://https://www.uu.nl/medewerkers/MADijkstra

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