The Financial Stability Board and Global Systemically Important Banks: Unintended Consequences?

60 Pages Posted: 11 Oct 2013

See all articles by Kathryn L. Dewenter

Kathryn L. Dewenter

University of Washington - Michael G. Foster School of Business

Alan C. Hess

University of Washington - Michael G. Foster School of Business

Date Written: October 1, 2013

Abstract

We identify, measure and compare the characteristics of Global Systemically Important Banks (G-SIBs) vis-à-vis banks not chosen by the Financial Stability Board (FSB) to be in the 2011 G-SIB group; investors’ responses to banks being classified as a G-SIB and how these responses relate to banks’ characteristics; and changes in banks’ financial performance after being named a G-SIB. The G-SIBs were larger, less profitable, more levered, and riskier. We find that the cumulative effect of the FSB announcements on G-SIBs’ stock prices was predominantly negative. In the year following designation, the G-SIBs shrank, reduced their net interest margins, and increased their leverage, market betas, and co-movement among G-SIB stock returns. The increased correlation across stock returns was associated with a reduction in the diversification benefits of holding a portfolio of G-SIB banks, providing evidence that the vulnerability of a G-SIB portfolio to a negative event rose, consistent with an increase in systemic risk. The data suggest that the FSB is not yet achieving its goals.

Keywords: Systemic risk, Regulation, Banks, Co-movement

JEL Classification: G21, G28

Suggested Citation

Dewenter, Kathryn L. and Hess, Alan C., The Financial Stability Board and Global Systemically Important Banks: Unintended Consequences? (October 1, 2013). Available at SSRN: https://ssrn.com/abstract=2338665 or http://dx.doi.org/10.2139/ssrn.2338665

Kathryn L. Dewenter (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Dept. of Finance & Business Economics
Seattle, WA 98195-3200
United States
206-685-7893 (Phone)
206-685-9392 (Fax)

Alan C. Hess

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States
206-543 4579 (Phone)
206-543-6809 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
264
Abstract Views
1,892
Rank
231,428
PlumX Metrics