Spillover Effects among Financial Institutions: A State-dependent Sensitivity Value-at-Risk Approach
Journal of Financial and Quantitative Analysis,
In this paper, we develop a state-dependent sensitivity value-at-risk (SDSVaR) approach that enables us to quantify the direction, size, and duration of risk spillovers among financial institutions as a function of the state of financial markets (tranquil, normal, and volatile). For four sets of major financial institutions (commercial banks, investment banks, hedge funds, and insurance companies) we show that while small during normal times, equivalent shocks lead to considerable spillover effects in volatile market periods. Commercial banks and, especially, hedge funds appear to play a major role in the transmission of shocks to other financial institutions.
Are Universal Banks Bad for Financial Stability? Germany During the World Financial Crisis
The Quarterly Review of Economics and Finance,
This case study explores the contribution of universal banking to ﬁnancial stability in Germany during the recent ﬁnancial crisis. Germany is a prototype for universal banking and has suffered from a rather small number of banking crises in the past. We review the banking literature and analyze the major institutional and regulatory features of the German ﬁnancial system to establish a nexus between universal banking and stability.
Is Rated Debt Arm's Length? Evidence from Mergers and Acquisitions
CFS Working Papers, No. 2011/10,
In this paper we challenge the view that corporate bonds are always arm's length debt. We analyze the effect of bond ratings on the stock price return to acquirers in M&A transactions, which tend to have significant effects on creditor wealth. We find acquirers abnormal returns to be higher if they are unrated, controlling for a wide variety of other effects identified in the literature. Tracing the difference in returns to distinct managerial decisions, we find that, everything else constant, rated firms increase their leverage in takeover transactions by less than their unrated counterparts. Consistent with a significant role for rating agencies, we find monitoring effects to be strongest when acquirer bonds are rated at the borderline between investment grade and junk. Finally, we are able to empirically exclude a large number of alternative explanations for the empirical regularities that we uncover.
Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset Bubble?
IWH Discussion Papers,
This study argues that the severity of the current global financial crisis is strongly influenced by changeable allocations of the global savings. This process is named a “wandering asset bubble”. Since its original outbreak induced by the demise of the subprime mortgage market and the mortgage-backed securities in the U.S., this crisis has reverberated across other credit areas, structured financial products and global financial institutions. Four distinctive stages of the crisis are identified: the meltdown of the subprime mortgage market, spillovers into broader credit market, the liquidity crisis epitomized by the fallout of Bear Sterns with some contagion effects on other financial institutions, and the commodity price bubble. Monetary policy responses aimed at stabilizing financial markets are proposed.