Delis, Manthos D and Tsionas, Efthymios (2011): A new method to estimate the risk of financial intermediaries.
Download (184kB) | Preview
In this paper we reconsider the formal estimation of the risk of financial intermediaries. Risk is modeled as the variability of the profit function of a representative intermediary, here bank, as formally considered in finance theory. In turn, banking theory suggests that risk is determined simultaneously with profits and other bank- and industry-level characteristics that cannot be considered predetermined when profit maximizing decisions of financial institutions are to be made. Thus, risk is endogenous. We estimate the model on a panel of US banks, spanning the period 1985q1-2010q2. The findings suggest that risk was fairly stable up to 2001 and accelerated quickly thereafter and up to 2007. Indices of bank risk commonly used in the literature do not capture this trend and/or the scale of the increase.
|Item Type:||MPRA Paper|
|Original Title:||A new method to estimate the risk of financial intermediaries|
|Keywords:||Risk of financial intermediaries; Endogenous risk; Full information maximum likelihood, Profit function, Duality|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages
|Depositing User:||Manthos Delis|
|Date Deposited:||15 Nov 2011 16:49|
|Last Modified:||20 Feb 2017 03:16|
Berger, Allen N., and Christa H.S. Bouwman, “Bank Liquidity Creation,” Review of Financial Studies 22 (2009), 3779-3837.
Berger, Allen N., and David B. Humphrey, “Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research 98 (1997), 175-212.
Bos, Jaap W.B, and Michael Koetter, Handling Losses in Translog Profit Models, Applied Economics 43, 307-312.
Dangl, Thomas, and Josef Zechner, “Credit Risk and Dynamic Capital Structure Choice,” Journal of Financial Intermediation 13 (2004), 183-204.
Degryse, Hans, Moshe Kim, and Steven Ongena, Microeconometrics of Banking: Methods, Applications and Results (Oxford University Press, Oxford, 2009).
Diamond, Douglas W., and Raghuram G. Rajan, “A Theory of Bank Capital,” The Journal of Finance 55 (2000), 2431–2465.
Flannery, Mark J., and Kasturi P. Rangan, “What Caused the Bank Capital Build-up of the 1990s?,” Review of Finance 12 (2008), 391-429.
Freixas, Xavier, and Jean-Charles Rochet, Microeconomics of Banking (MIT Press, Cambridge, Massachusetts, 2008).
Humphrey, David B., and Lawrence B. Pulley, “Banks' Response to Deregulation: Profits, Tech-nology and Efficiency,” Journal of Money, Credit and Banking 29 (1997), 73–93.
Koetter, Michael, James W. Kolari, and Laura Spierdijk, “Enjoying the Quiet Life under Deregulation? Evidence from Adjusted Lerner Indices for U.S. Banks,” The Review of Economics and Statistics, forthcoming.
Markowitz, Harry, “Portfolio Selection,” Journal of Finance 7 (1952), 77-91.
Rigobon, Roberto, “Identification Through Heteroskedasticity,” The Review of Economics and Statistics 85 (2003), 777-792.
Roy, Arthur D., “Safety First and the Holding of Assets,” Econometrica 20 (1952), 431-449.
Shrieves, Ronald E., and Drew Dahl, “The Relationship between Risk and Capital in Commercial Banks,” Journal of Banking and Finance 16 (1992), 439-457.
Available Versions of this Item
- A new method to estimate the risk of financial intermediaries. (deposited 15 Nov 2011 16:49) [Currently Displayed]