International Banking and the Allocation of Risk

27 Pages Posted: 2 Jun 2007

See all articles by Claudia M. Buch

Claudia M. Buch

Deutsche Bundesbank

Gayle L. DeLong

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Katja Neugebauer

Institute for Applied Economic Research (IAW); University of Tuebingen - Faculty of Economics and Business Administration

Date Written: May 2007

Abstract

Macroeconomic risks could magnify individual bank risk. Mitigating the influence of economy-wide risks on banks could therefore be very important to maintain a smooth-running banking system. In this paper, we explore the extent to which macroeconomic risks affect banks. We use a bank-level dataset on over 2,000 banks worldwide for the years 1995-2002 to study the effect of macroeconomic volatility, the openness of the banking system, and banking regulations on bank risks. Our measure of bank risk is the volatility of banks' pre-tax profits. We find that macroeconomic volatility increases banks' profit volatility and that international openness of the banking system lowers bank risk. We find no impact of banking regulation on profit volatility. Our findings suggest that if policymakers want to lower bank risk, they should seek to lower macroeconomic volatility as well as increase openness in the banking system.

Keywords: international banking, macroeconomic volatility, banking risk

JEL Classification: F37, F41, G21

Suggested Citation

Buch, Claudia M. and DeLong, Gayle L. and Neugebauer, Katja, International Banking and the Allocation of Risk (May 2007). Available at SSRN: https://ssrn.com/abstract=990345 or http://dx.doi.org/10.2139/ssrn.990345

Claudia M. Buch

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Gayle L. DeLong

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

One Bernard Baruch Way
Box B 10-225
New York, NY 10010
United States
646-312-3493 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://faculty.baruch.cuny.edu/gdelong

Katja Neugebauer

Institute for Applied Economic Research (IAW) ( email )

Ob dem Himmelreich 1
Tubingen, 72074
Germany

University of Tuebingen - Faculty of Economics and Business Administration ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

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