Bank Foreign Assets, Government Support and International Spillover Effects
Joint work with Nils Moch (University of Lüneburg)
We study international spillover effects of a sovereign rating change to stock returns of large banks in non-event countries. Using S&P rating assessments from 1983 to 2018, we find that stock returns of large banks respond stronger to foreign sovereign downgrades than foreign stock markets in general. We attribute this stronger response to the special role large banks play in the international financial system. We show that the international spillover strength increases with banks’ foreign sovereign debt holdings as well as with their foreign claims to banks and non-banks, while it decreases with banks’ expected government support. The latter result indicates that expected government support shields internationally active banks from value destroying spillover effects of foreign sovereign downgrades.
Risk committees, Basel regulation and bank risk taking in dual banking systems
Joint work with Amal AlAbbad (LaPenta School of Business)
We investigate empirically whether banks in dual banking countries more likely install risk committees after Basel disclosure requirements have been implemented. Using a hand-collected sample of Islamic banks and matched conventional banks, we find that Basel disclosure requirements make it more likely that banks establish risk committees. After a risk committee has been formed, risk taking of banks declines. These findings suggest that risk-based capital regulation does not only directly affect banks’ risk taking, but it also influences bank risk governance, which in turn affects risk taking. While Islamic banks, due to their compliance to Islamic law, or Shariah, are less likely to establish risk committee than conventional banks, the two show similar responses to changes in regulatory disclosure requirements.
Money Laundering and operational risk governance
Joint work with Sandra Tillema (University of Groningen)
In this project we investigate stock market responses when money laundering infractions of internationally active banks are announced.