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Title:International Banking and the Allocation of Risk PDF Logo
Authors:Buch, Claudia M.
DeLong, Gayle L.
Neugebauer, Katja
Issue Date:2007
Series/Report no.:IAW-Diskussionspapiere 32
Abstract:Macroeconomic risks could magnify individual bank risk. Mitigating the influence of economy-wide risks on banks could therefore be very important to maintain a smooth-running banking system. In this paper, we explore the extent to which macroeconomic risks affect banks. We use a bank-level dataset on over 2,000 banks worldwide for the years 1995-2002 to study the effect of macroeconomic volatility, the openness of the banking system, and banking regulations on bank risks. Our measure of bank risk is the volatility of banks? pretax profits. We find that macroeconomic volatility increases banks? profit volatility and that international openness of the banking system lowers bank risk. We find no impact of banking regulation on profit volatility. Our findings suggest that if policymakers want to lower bank risk, they should seek to lower macroeconomic volatility as well as increase openness in the banking system.
Subjects:international banking
macroeconomic volatility
banking risk
JEL:F37
G21
F41
Document Type:Working Paper
Appears in Collections:IAW-Diskussionspapiere, Institut für Angewandte Wirtschaftsforschung (IAW)

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