Forward-looking tail risk exposures at US bank holding companies
Knaup,M. Wagner,W.B.
Knaup,M.
Wagner,W.B.
Abstract
This paper develops a simple method for quantifying banks’ exposures to large (negative) shocks in a forward-looking manner. The method is based on estimating banks’ share prices sensitivities to (market) put options and does not require the actual observation of tail risk events. We find that estimated (excess) tail risk exposures for U.S. Bank Holding Companies are negatively correlated with their share price beta, suggesting that banks which appear safer in normal periods are actually more crisis prone than their beta would suggest. We also study the determinants of banks’ tail risk exposures and find that their key drivers are uninsured deposits and non-traditional activities that leave assets on banks’ balance sheets.
Description
Date
2012-10
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
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Journal Issue
Keywords
tail risk, forward-looking, banks, systemic crisis, G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages, G28 - Government Policy and Regulation
Citation
Knaup, M & Wagner, W B 2012, 'Forward-looking tail risk exposures at US bank holding companies', Journal of Financial Services Research, vol. 42, no. 1-2, pp. 35-54. https://doi.org/10.1007%2Fs10693-012-0131-5