Banks are growing ever larger compared to their national economies. We show that increases in relative bank size (measured as a bank’s liabilities divided by national GDP) are linked to banks displaying higher tail risk. This effect is not entirely due to risk channels that disproportionately expose relatively large banks to systematic tail risks, sovereign risks, or banking crises. Instead, we...

According to the nature of their activities, banks are exposed to various types of risks. Hence, risk management is at the heart of financial institutions management. In this study, we intend to summarize the information content of bank financial statements on diverse risks faced by banks and then determine how stock markets react to bank's risk management behavior. The methodology used in this...

Banking industry is exposed to different type of risks like credit, operational, interest rate risk, liquidity risk, foreign currency risk, compliance risk, reputational risk, and country risk. Banking industry can only become stable and stronger if they have proper tools to mitigate these risks. Due to product innovation and complexity of operations banks are giving more importance to mitigate...

This paper seeks to examine the competitive behavior of the Brazilian banking industry by conducting an analysis at the level of individual banks to gain an understanding of how the risk-taking behaviors of banks are affected by their degree of market power. Our results suggest that the Brazilian banking industry is characterized by monopolistic competition. Our foremost finding is that the mar...

A new risk was born in the mid-1990s known as operational risk. Though its application varied by institutions Basel II for banks and Solvency 2 for insurances the idea stays the same. Firms are interested in operational risk because exposure can be fatal. Hence it has become one of the major risks of the financial sector. In this study, we are going to define operational risk in addition to its...

Modern systems of risk management in financial institutions require a process of estimation of the amount of capital that is needed to cover losses arising from various types of risk and its allocation to business units in order to measure their risk-adjusted performance. In this paper we describe the structure of operational risk economic capital estimation model suitable for implementation of...

We study empirically the effect of focus (specialization) vs. diversification on the return and the risk of banks using data from 105 Italian banks over the period 1993–1999. Specifically, we analyze the tradeoffs between (loan portfolio) focus and diversification using a unique data set that is able to identify individual bank loan exposures to different industries, to different sectors, and t...

Regulation and risk management in banks depend on underlying risk measures. In general this is the only purpose that is seen for risk measures. In this paper we suggest that the reporting of risk measures can be used to determine the loss distribution function for a financial entity. We demonstrate that a lack of sufficient information can lead to ambiguous risk situations. We give examples, sh...