We analyze the risk implications of European bank consolidation on the probability of default of acquiring banks. Using the Merton distance to default model, we show that the average bank merger is risk neutral. We examine the extent to which merger motives linked to risk diversification and regulatory incentives explain the observed risk effects of M&A. However, we find only limited evidence c...

This paper studies the possibility of endogenous fluctuations caused by activities of financial intermediaries. Risk-averse agents borrow from banks and invest in a risky two-state capital technology. The probability of success with the technology is assumed to be decreasing in the amount of capital invested. In a complete information setting with intermediation, the efficient loan contract ach...

We study the relationship between the stock market’s reaction to a prior acquisition and the risk associated with a subsequent acquisition. Using a sample of 823 acquisitions over the period 1990–2006 we find that acquirers buy increasingly volatile targets both as the abnormal dollar gains from the previous acquisition announcement increase, and as the abnormal dollar losses increase (i.e. a V...

This paper investigates the effect of the ‘‘First Financial Restructuring” (FFR) on the operating efficiency of commercial banks in Taiwan. Applying data envelopment analysis (DEA) to operations data for 40 commercial banks over the 6-year period 2000–2005, we find that while the banks have lower operating efficiency on average during the reform period (2002–2003) compared to the pre-reform per...

Previously circulated under the title \Banks and credit derivatives: Is it always good to have more risk management tools?" Abstract We model the eeects on banks of the introduction of a market for credit derivatives; in particular, credit default swaps. A bank can use such swaps to temporarily transfer credit risks of their loans to others, reducing the likelihood that defaulting loans trigger...

After its development and phenomenal success, Total Quality Management (TQM) was applied outside the industrial sectors to service organizations, such as banks. This paper investigates the application of TQM to a service organizations using Jordanian baking sector as a model example. Banking is an important sector in Jordan. The government has introduced several laws and constitutions aimed to ...

Banks face a tradeoff between diversifying and focusing their loan portfolio. In this paper we carry out an empirical study for the German market to shed light on the question whether or not the benefits of risk sharing outweigh those of specialization. We use data from the Bundesbank’s quarterly borrowers statistic to determine the degree of diversification in the banks’ loan portfolios and co...

Si Chuan University , Sichuan, China Drawing specific reserve separately for operational risk is the requirement of the New Basel Capital Accord. Since 1990, as serious loss incidents in operation risk often happened all over the world, operational risk is taken account into the risk management framework for the first time in New Basel Capital Accord, becoming the three main risk get along with...