Pub Date : 2025-04-24DOI: 10.1016/j.jfs.2025.101414
William Chen , Gregory Phelan
We introduce digital currency into a macro model with a banking sector in which financial frictions generate endogenous systemic risk and instability. In the model, digital currency is fully integrated into the financial system. Stablecoin issuance significantly increases the probability of a banking-sector crisis because it depresses bank deposit spreads, particularly during crises, which limits banks’ ability to recapitalize following losses. While banking-sector stability suffers, household welfare can still improve significantly. Financial frictions nevertheless limit the potential benefits of digital currencies. The optimal level of digital currency could be below what would be issued in a competitive environment. In contrast to stablecoins, which are backed by debt, tokenized deposits backed by traditional bank assets improve welfare without harming financial stability. The scope for welfare gains from stablecoins or tokenized deposits depends on how households value the liquidity services of digital currency relative to traditional deposits and on the cost of issuing stablecoins.
{"title":"Digital currency and banking-sector stability","authors":"William Chen , Gregory Phelan","doi":"10.1016/j.jfs.2025.101414","DOIUrl":"10.1016/j.jfs.2025.101414","url":null,"abstract":"<div><div>We introduce digital currency into a macro model with a banking sector in which financial frictions generate endogenous systemic risk and instability. In the model, digital currency is fully integrated into the financial system. Stablecoin issuance significantly increases the probability of a banking-sector crisis because it depresses bank deposit spreads, particularly during crises, which limits banks’ ability to recapitalize following losses. While banking-sector stability suffers, household welfare can still improve significantly. Financial frictions nevertheless limit the potential benefits of digital currencies. The optimal level of digital currency could be below what would be issued in a competitive environment. In contrast to stablecoins, which are backed by debt, tokenized deposits backed by traditional bank assets improve welfare without harming financial stability. The scope for welfare gains from stablecoins or tokenized deposits depends on how households value the liquidity services of digital currency relative to traditional deposits and on the cost of issuing stablecoins.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101414"},"PeriodicalIF":6.1,"publicationDate":"2025-04-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143876708","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-04-22DOI: 10.1016/j.jfs.2025.101409
Christy Dwita Mariana , Arisyi F. Raz
The existing literature provides inconclusive theoretical predictions regarding whether central banks’ monetary policy should address financial stability. We therefore empirically evaluate the effect of central banks’ financial stability orientation (“leaning against the wind”) on bank risk-taking. Our baseline results from cross-country, bank-level panel data suggest that higher central banks’ financial stability orientation significantly reduces bank risk-taking. Further investigation shows that monetary policy aimed at achieving financial stability complements macroprudential policy in reducing bank risk-taking, particularly during macroprudential policy tightening. These results offer novel insights into the effect of central bank’s monetary policy on bank stability and provide empirical evidence to prior theoretical works.
{"title":"Central banks’ financial stability orientation and bank risk-taking","authors":"Christy Dwita Mariana , Arisyi F. Raz","doi":"10.1016/j.jfs.2025.101409","DOIUrl":"10.1016/j.jfs.2025.101409","url":null,"abstract":"<div><div>The existing literature provides inconclusive theoretical predictions regarding whether central banks’ monetary policy should address financial stability. We therefore empirically evaluate the effect of central banks’ financial stability orientation (“leaning against the wind”) on bank risk-taking. Our baseline results from cross-country, bank-level panel data suggest that higher central banks’ financial stability orientation significantly reduces bank risk-taking. Further investigation shows that monetary policy aimed at achieving financial stability complements macroprudential policy in reducing bank risk-taking, particularly during macroprudential policy tightening. These results offer novel insights into the effect of central bank’s monetary policy on bank stability and provide empirical evidence to prior theoretical works.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101409"},"PeriodicalIF":6.1,"publicationDate":"2025-04-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143868791","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-04-17DOI: 10.1016/j.jfs.2025.101413
John V. Duca , Franklin Sanchez-Colburn
This study models the closely held (PE) share of U.S. nonfinancial corporate equity over time. Corporate income tax rates, the Sarbanes-Oxley Act, default risk, and the real medium-run Treasury yield significantly affect the PE share, consistent with other studies which separately analyze these factors. The PE share is negatively related to business loan delinquencies and real medium-term Treasury rates. High interest rates discourage PE funds from using leverage to finance buyouts of public companies and fund distributions of interim cash distributions that enhance the relative liquidity of the closely held firms in PE fund portfolios. Interim cash distributions by PE funds help to avoid the double-taxation of dividends, thus causing the appeal of PE to rise with corporate income tax rates, which increases the PE share. The PE share rose during the Enron scandal and after the Sarbanes-Oxley Act (SOX), which increased the costs of continuing as, or becoming, a publicly traded corporation. The PE share is well explained and tracked by key macroeconomic variables as well as tax and regulatory policies.
{"title":"What drives U.S. corporate private equity? An historical perspective","authors":"John V. Duca , Franklin Sanchez-Colburn","doi":"10.1016/j.jfs.2025.101413","DOIUrl":"10.1016/j.jfs.2025.101413","url":null,"abstract":"<div><div>This study models the closely held (PE) share of U.S. nonfinancial corporate equity over time. Corporate income tax rates, the Sarbanes-Oxley Act, default risk, and the real medium-run Treasury yield significantly affect the PE share, consistent with other studies which separately analyze these factors. The PE share is negatively related to business loan delinquencies and real medium-term Treasury rates. High interest rates discourage PE funds from using leverage to finance buyouts of public companies and fund distributions of interim cash distributions that enhance the relative liquidity of the closely held firms in PE fund portfolios. Interim cash distributions by PE funds help to avoid the double-taxation of dividends, thus causing the appeal of PE to rise with corporate income tax rates, which increases the PE share. The PE share rose during the Enron scandal and after the Sarbanes-Oxley Act (SOX), which increased the costs of continuing as, or becoming, a publicly traded corporation. The PE share is well explained and tracked by key macroeconomic variables as well as tax and regulatory policies.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101413"},"PeriodicalIF":6.1,"publicationDate":"2025-04-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143868792","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine whether gender diversity at the target firm influences acquisition decisions by gender-diverse firms. Our findings show that gender-diverse acquirers are more likely to select gender-diverse targets over male-only firms. This preference is driven by specific attributes of female directors at the target firm, such as their educational and professional qualifications, networking abilities, functional experience, and industry expertise. Gender-diverse acquirers pay a lower premium to gender-diverse targets compared to male-only targets, and these acquisitions are positively received by the market, reflected in significant announcement-period abnormal returns. Additionally, gender-diverse firms that acquire gender-diverse targets show stronger post-acquisition performance compared to those acquiring male-only targets. These findings remain robust after addressing potential endogeneity concerns, including omitted variable bias and reverse causality.
{"title":"Board gender diversity at target firms and acquisition decisions of gender diverse bidders","authors":"Abeyratna Gunasekarage , Kristina Minnick , Syed Shams","doi":"10.1016/j.jfs.2025.101410","DOIUrl":"10.1016/j.jfs.2025.101410","url":null,"abstract":"<div><div>We examine whether gender diversity at the target firm influences acquisition decisions by gender-diverse firms. Our findings show that gender-diverse acquirers are more likely to select gender-diverse targets over male-only firms. This preference is driven by specific attributes of female directors at the target firm, such as their educational and professional qualifications, networking abilities, functional experience, and industry expertise. Gender-diverse acquirers pay a lower premium to gender-diverse targets compared to male-only targets, and these acquisitions are positively received by the market, reflected in significant announcement-period abnormal returns. Additionally, gender-diverse firms that acquire gender-diverse targets show stronger post-acquisition performance compared to those acquiring male-only targets. These findings remain robust after addressing potential endogeneity concerns, including omitted variable bias and reverse causality.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101410"},"PeriodicalIF":6.1,"publicationDate":"2025-04-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143843268","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-03-27DOI: 10.1016/j.jfs.2025.101408
Man Wang , Xueting Wang
This paper explores how geopolitical risk affects corporate maturity mismatch using a sample of Chinese listed corporations. We find that geopolitical risk significantly exacerbates corporate maturity mismatch. Specifically, GPR increases corporate long-term investment and short-term debt, while decreasing corporate short-term investment and long-term debt. Further, the impact of GPR is amplified by R&D investment, industry competitiveness, and financial constraint, but weakened by corporate credit quality. The results of the mechanism test suggest that geopolitical risk exacerbates corporate maturity mismatch by increasing corporate information asymmetry and default risk. Additionally, we find that the impact of GPR on corporate maturity mismatch exhibits industry heterogeneity, and the positive effect of geopolitical risk on corporate maturity mismatch is more significant for high-growth corporations, non-state-owned corporations, small corporations, multinational corporations, and capital-intensive corporations. Finally, based on the extended Fama-French models, we construct two firm-level GPR indicators and the results indicate that individual GPR exacerbates maturity mismatch. Our paper enriches the research on the factors affecting maturity mismatch and helps corporations better manage operational and uncertainty risks.
{"title":"Geopolitical risk and corporate maturity mismatch","authors":"Man Wang , Xueting Wang","doi":"10.1016/j.jfs.2025.101408","DOIUrl":"10.1016/j.jfs.2025.101408","url":null,"abstract":"<div><div>This paper explores how geopolitical risk affects corporate maturity mismatch using a sample of Chinese listed corporations. We find that geopolitical risk significantly exacerbates corporate maturity mismatch. Specifically, GPR increases corporate long-term investment and short-term debt, while decreasing corporate short-term investment and long-term debt. Further, the impact of GPR is amplified by R&D investment, industry competitiveness, and financial constraint, but weakened by corporate credit quality. The results of the mechanism test suggest that geopolitical risk exacerbates corporate maturity mismatch by increasing corporate information asymmetry and default risk. Additionally, we find that the impact of GPR on corporate maturity mismatch exhibits industry heterogeneity, and the positive effect of geopolitical risk on corporate maturity mismatch is more significant for high-growth corporations, non-state-owned corporations, small corporations, multinational corporations, and capital-intensive corporations. Finally, based on the extended Fama-French models, we construct two firm-level GPR indicators and the results indicate that individual GPR exacerbates maturity mismatch. Our paper enriches the research on the factors affecting maturity mismatch and helps corporations better manage operational and uncertainty risks.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101408"},"PeriodicalIF":6.1,"publicationDate":"2025-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143759766","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-03-27DOI: 10.1016/j.jfs.2025.101407
Akash Singh Yadav , Inder Sekhar Yadav
This paper investigates the impact of country-level governance on corporate investment efficiency using data from Indian-listed firms between 2009 and 2022. Additionally, we explore how country-level governance interacts with firm-level corporate governance to influence investment inefficiency. Using World Bank's worldwide governance indicators, our findings from panel econometric models reveal that country-level governance and its subcomponents (political stability, government effectiveness, regulatory quality, rule of law, control of corruption, and voice and accountability) negatively affect investment inefficiency, underinvestment, and overinvestment. This suggests that robust governance at country-level serves as a control mechanism, reducing companies' likelihood of investing above or below optimal levels. Furthermore, we find that the effect of firm-level corporate governance (measured using a newly constructed governance index) on investment inefficiency is more pronounced in weak country-level governance environments, indicating a substitutive relationship. Similar patterns are observed in overinvestment and underinvestment scenarios. This evidence implies that when country-level governance is inadequate in mitigating agency conflicts and information asymmetries, firm-level corporate governance mechanisms become crucial for promoting investment efficiency. The robustness of our results is ensured through various methodological approaches. Sample selection bias is addressed using entropy balancing, while endogeneity concerns are mitigated with a combination of two-stage least squares, firm fixed effects, and a two-step generalized method of moments. Additionally, our findings remain consistent when using different proxies for both dependent and independent variables. Our empirical investigation provides valuable insights for regulators, policymakers, and corporate stakeholders in developing efficient investment policies.
{"title":"The impact of country- and firm-level governance on capital allocation efficiency: New evidence from India","authors":"Akash Singh Yadav , Inder Sekhar Yadav","doi":"10.1016/j.jfs.2025.101407","DOIUrl":"10.1016/j.jfs.2025.101407","url":null,"abstract":"<div><div>This paper investigates the impact of country-level governance on corporate investment efficiency using data from Indian-listed firms between 2009 and 2022. Additionally, we explore how country-level governance interacts with firm-level corporate governance to influence investment inefficiency. Using World Bank's worldwide governance indicators, our findings from panel econometric models reveal that country-level governance and its subcomponents (political stability, government effectiveness, regulatory quality, rule of law, control of corruption, and voice and accountability) negatively affect investment inefficiency, underinvestment, and overinvestment. This suggests that robust governance at country-level serves as a control mechanism, reducing companies' likelihood of investing above or below optimal levels. Furthermore, we find that the effect of firm-level corporate governance (measured using a newly constructed governance index) on investment inefficiency is more pronounced in weak country-level governance environments, indicating a substitutive relationship. Similar patterns are observed in overinvestment and underinvestment scenarios. This evidence implies that when country-level governance is inadequate in mitigating agency conflicts and information asymmetries, firm-level corporate governance mechanisms become crucial for promoting investment efficiency. The robustness of our results is ensured through various methodological approaches. Sample selection bias is addressed using entropy balancing, while endogeneity concerns are mitigated with a combination of two-stage least squares, firm fixed effects, and a two-step generalized method of moments. Additionally, our findings remain consistent when using different proxies for both dependent and independent variables. Our empirical investigation provides valuable insights for regulators, policymakers, and corporate stakeholders in developing efficient investment policies.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101407"},"PeriodicalIF":6.1,"publicationDate":"2025-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143816836","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-03-20DOI: 10.1016/j.jfs.2025.101404
William D. Lastrapes , Thomas F.P. Wiesen
We estimate the effect of the spring 2023 failures of Silicon Valley Bank and Signature Bank on the “connectedness” of US bank stock return volatilities using the forecast error variance decomposition framework of Diebold and Yilmaz (2012, 2014) and Lastrapes and Wiesen (2021). Using split-sample and time-varying VAR methods, we find that those failures significantly increased spillovers across a sample of surviving regional banks, but had only small and temporary effects on spillovers across systemically important too-big-to-fail banks. Our main findings imply that regulatory policy toward systemically important banks has been credible but that additional oversight of regional banks should be considered.
{"title":"Regional bank failures and volatility transmission","authors":"William D. Lastrapes , Thomas F.P. Wiesen","doi":"10.1016/j.jfs.2025.101404","DOIUrl":"10.1016/j.jfs.2025.101404","url":null,"abstract":"<div><div>We estimate the effect of the spring 2023 failures of Silicon Valley Bank and Signature Bank on the “connectedness” of US bank stock return volatilities using the forecast error variance decomposition framework of Diebold and Yilmaz (2012, 2014) and Lastrapes and Wiesen (2021). Using split-sample and time-varying VAR methods, we find that those failures significantly increased spillovers across a sample of surviving regional banks, but had only small and temporary effects on spillovers across systemically important too-big-to-fail banks. Our main findings imply that regulatory policy toward systemically important banks has been credible but that additional oversight of regional banks should be considered.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101404"},"PeriodicalIF":6.1,"publicationDate":"2025-03-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143687573","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite the significance of social networks in influencing firm behavior, research on their impact on corporate tax behavior is limited. In this paper, we construct social networks of CFOs from U.S. companies based on their employment history, education, and non-professional activities. We find that firms with more socially connected CFOs have lower effective tax rates (ETR) compared to firms with less socially connected CFOs. This effect is more pronounced when corporate governance is weaker and managers have higher incentives. Furthermore, a firm's ETR decreases as CFO centrality increases. We do not observe similar results regarding the connectedness of boards of directors. Additionally, firm pairs exhibit similar ETRs when their CFOs are socially connected, suggesting an exchange of tax-related information among CFOs through their social networks. We also find that the past ETRs of firms with central CFOs predict the ETRs of firms with non-central CFOs. This indicates that less socially connected CFOs tend to follow the tax planning strategies of their more socially connected counterparts. Overall, our findings indicate that more socially connected CFOs possess more relevant information and resources regarding tax planning, leading to the adoption of more aggressive tax strategies compared to their less socially connected counterparts.
{"title":"CFO social networks and corporation taxation","authors":"Ming Fang , Qiang Wu , Xin (Emma) Xu , Zejiang Zhou","doi":"10.1016/j.jfs.2025.101405","DOIUrl":"10.1016/j.jfs.2025.101405","url":null,"abstract":"<div><div>Despite the significance of social networks in influencing firm behavior, research on their impact on corporate tax behavior is limited. In this paper, we construct social networks of CFOs from U.S. companies based on their employment history, education, and non-professional activities. We find that firms with more socially connected CFOs have lower effective tax rates (ETR) compared to firms with less socially connected CFOs. This effect is more pronounced when corporate governance is weaker and managers have higher incentives. Furthermore, a firm's ETR decreases as CFO centrality increases. We do not observe similar results regarding the connectedness of boards of directors. Additionally, firm pairs exhibit similar ETRs when their CFOs are socially connected, suggesting an exchange of tax-related information among CFOs through their social networks. We also find that the past ETRs of firms with central CFOs predict the ETRs of firms with non-central CFOs. This indicates that less socially connected CFOs tend to follow the tax planning strategies of their more socially connected counterparts. Overall, our findings indicate that more socially connected CFOs possess more relevant information and resources regarding tax planning, leading to the adoption of more aggressive tax strategies compared to their less socially connected counterparts.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101405"},"PeriodicalIF":6.1,"publicationDate":"2025-03-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143687574","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-03-16DOI: 10.1016/j.jfs.2025.101406
Xiao Li , Jeffrey Ng , Walid Saffar
Using the staggered adoption of collateral law reforms across Europe, we examine their effects on trade credit financing. We find that firms in countries that adopt such reforms receive less trade credit, consistent with suppliers viewing these firms as less creditworthy. Moreover, this decrease in trade credit is more pronounced for firms and industries with more movable assets, for financially constrained firms, and for firms in countries with strong legal enforcement, indicating that collateralization of movable assets drives this relation. Our findings suggest that the use of movable assets as collateral in bank borrowing increases supplier risks and decreases demand for trade credit, thus discouraging its use.
{"title":"Movable assets as collateral in debt financing and effects on trade credit: Evidence from collateral law reforms","authors":"Xiao Li , Jeffrey Ng , Walid Saffar","doi":"10.1016/j.jfs.2025.101406","DOIUrl":"10.1016/j.jfs.2025.101406","url":null,"abstract":"<div><div>Using the staggered adoption of collateral law reforms across Europe, we examine their effects on trade credit financing. We find that firms in countries that adopt such reforms receive less trade credit, consistent with suppliers viewing these firms as less creditworthy. Moreover, this decrease in trade credit is more pronounced for firms and industries with more movable assets, for financially constrained firms, and for firms in countries with strong legal enforcement, indicating that collateralization of movable assets drives this relation. Our findings suggest that the use of movable assets as collateral in bank borrowing increases supplier risks and decreases demand for trade credit, thus discouraging its use.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101406"},"PeriodicalIF":6.1,"publicationDate":"2025-03-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143654544","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-03-15DOI: 10.1016/j.jfs.2025.101403
Rym Ayadi , Paola Bongini , Barbara Casu , Doriana Cucinelli
Using a large sample of European listed banks, we investigate the relationship between a bank’s business model and systemic risk between 2005 and 2020, a period which includes various episodes of instability. Our findings indicate that, during tranquil periods, banks with different business models exhibit similar sensitivity to systemic risk. However, during periods of instability, the type of business model becomes critical: investment banks contribute more to and are more exposed to systemic risk. Distinguishing between endogenous and exogenous crises, our results reveal that market-oriented banks contribute more to systemic risk when instability is endogenous to the financial sector. Conversely, focused retail banks consistently show lower contributions and exposures to systemic risk. Additionally, our findings highlight the importance of business model migrations in reducing systemic risk. Banks transitioning from diversified to more retail-oriented models reduce their systemic risk, whereas migrations in the opposite direction do not exhibit the same benefit. These findings underscore the importance of maintaining diverse business models in the banking sector to enhance financial stability.
{"title":"The origin of financial instability and systemic risk: Do bank business models matter?","authors":"Rym Ayadi , Paola Bongini , Barbara Casu , Doriana Cucinelli","doi":"10.1016/j.jfs.2025.101403","DOIUrl":"10.1016/j.jfs.2025.101403","url":null,"abstract":"<div><div>Using a large sample of European listed banks, we investigate the relationship between a bank’s business model and systemic risk between 2005 and 2020, a period which includes various episodes of instability. Our findings indicate that, during tranquil periods, banks with different business models exhibit similar sensitivity to systemic risk. However, during periods of instability, the type of business model becomes critical: investment banks contribute more to and are more exposed to systemic risk. Distinguishing between endogenous and exogenous crises, our results reveal that market-oriented banks contribute more to systemic risk when instability is endogenous to the financial sector. Conversely, focused retail banks consistently show lower contributions and exposures to systemic risk. Additionally, our findings highlight the importance of business model migrations in reducing systemic risk. Banks transitioning from diversified to more retail-oriented models reduce their systemic risk, whereas migrations in the opposite direction do not exhibit the same benefit. These findings underscore the importance of maintaining diverse business models in the banking sector to enhance financial stability.</div></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"78 ","pages":"Article 101403"},"PeriodicalIF":6.1,"publicationDate":"2025-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143687067","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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