Charter Value and Bank Stability Before and After the Global Financial Crisis of 2007-2008

36 Pages Posted: 28 Jun 2016 Last revised: 18 Oct 2017

See all articles by Yassine Bakkar

Yassine Bakkar

School of Business and Governance – Tallinn University of Technology

Clovis Rugemintwari

Université de Limoges, LAPE

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: October 14, 2017

Abstract

We investigate how bank charter value affects risk for a sample of OECD banks by using standalone and systemic risk measures before, during, and after the global financial crisis of 2007-2008. Prior to the crisis, bank charter value is positively associated with risk-taking and systemic risk for very large “too-big-too-fail” banks and large U.S. and European banks but such a relationship is inverted during and after the crisis. A deeper investigation shows that such a behavior before the crisis is mostly relevant for very large banks and large banks with high growth strategies. Banks' business models also influence this relationship. We find that for banks following a focus strategy, higher charter value amplifies both standalone and systemic risk for large U.S. and European banks. Our findings have important policy implications and cast doubts on the relevance of the uniform more stringent capital requirements introduced by Basel III.

Keywords: Systemic risk, Standalone risk, Charter value, Bank strategies, Too-big-too-fail, Global financial crisis, Bank regulation

JEL Classification: G21, G28, G32

Suggested Citation

Bakkar, Yassine and Rugemintwari, Clovis and Tarazi, Amine, Charter Value and Bank Stability Before and After the Global Financial Crisis of 2007-2008 (October 14, 2017). Available at SSRN: https://ssrn.com/abstract=2800616 or http://dx.doi.org/10.2139/ssrn.2800616

Yassine Bakkar (Contact Author)

School of Business and Governance – Tallinn University of Technology ( email )

Akadeemia tee 3
Tallinn, Harjumaa 12618
Estonia

Clovis Rugemintwari

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

HOME PAGE: http://www.unilim.fr/lape/staff/full-time/article/clovis-rugemintwari

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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