Factors determining European bank risk

Haq, Mamiza and Heaney, Richard (2012) Factors determining European bank risk. Journal of International Financial Markets, Institutions and Money, 22 4: 696-718. doi:10.1016/j.intfin.2012.04.003

Author Haq, Mamiza
Heaney, Richard
Title Factors determining European bank risk
Journal name Journal of International Financial Markets, Institutions and Money   Check publisher's open access policy
ISSN 1042-4431
Publication date 2012-10-01
Sub-type Article (original research)
DOI 10.1016/j.intfin.2012.04.003
Open Access Status Not yet assessed
Volume 22
Issue 4
Start page 696
End page 718
Total pages 23
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Language eng
Abstract We investigate bank capital, charter value, off-balance sheet activities, dividend payout ratio and size as determinants of bank equity risk (systematic risk, total risk, interest rate risk and idiosyncratic risk) and credit risk. Using information for 117 financial institutions across 15 European countries over the period 1996–2010, we find evidence of a convex (U-shaped) relation between bank capital and bank systematic risk and credit risk. We find mixed evidence on the relation between charter value and our measures of bank risk. The results also show a positive association between off-balance sheet activities and bank risk. It is also evident that dividend payout ratio is negatively related to all risk measures. We find large banks reflect higher total risk and lower credit risk. Following the creation of the Economic Monetary Union, we also observe an increase in bank risk sensitivity to both bank capital and off-balance sheet activities and a decrease in the sensitivity of bank risk to charter value. Finally, with regard to the impact of the recent global financial crisis, we find that the largest decline in the coefficient value is observed for bank capital relative to credit risk. These results are robust to various model specifications.
Keyword Bank risk
Bank capital
Charter value
Off-balance sheet items
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2013 Collection
UQ Business School Publications
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Citation counts: TR Web of Science Citation Count  Cited 36 times in Thomson Reuters Web of Science Article | Citations
Scopus Citation Count Cited 32 times in Scopus Article | Citations
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Created: Wed, 20 Jun 2012, 00:44:14 EST by Mamiza Haq on behalf of UQ Business School