Reputational Risk Measurement: Brazilian Banks

19 Pages Posted: 23 Jun 2016

Date Written: April 29, 2016

Abstract

This paper investigates the reputational risk measurement in banking using a simple model that integrates random effects and Logit models. The pricing theory is outlined to include risk determinant factors as well as negative news for banks. The environment under which the quantitative model is applied corresponds to the perfect macroeconomic storm of Brazil that represents its weak oil prices, faint domestic economic activity and huge political problems. These aspects can increase risk in Brazilian banks, particularly by creating rumors that may trigger bank runs or other reputational problems. The results indicate that the large banks in the sample have the capacity to absorb the problems related to reputational risk with small variance and probability, in 2015. Besides that, one large investment bank suffered reputational problems.

Keywords: financial markets, asset pricing, risk management

JEL Classification: D53, G12, G32

Suggested Citation

Araújo, Luiz Alberto D´Ávila de and Vinhado, Fernando, Reputational Risk Measurement: Brazilian Banks (April 29, 2016). Available at SSRN: https://ssrn.com/abstract=2799248 or http://dx.doi.org/10.2139/ssrn.2799248

Luiz Alberto D´Ávila de Araújo (Contact Author)

Banco do Brasil ( email )

Praca XV de Novemro 20
Centro, 20010-010
Rio de Janeiro
Brazil

Fernando Vinhado

Catholic University of Brasilia ( email )

Brasilia, DF
Brazil

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