Banking System Stability Is Largely Built On A Number Of Internal And External Characteristics

The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions

The idea of “risk” is used in many fields and industries. There has been large efforts made towards the understanding of risk. Since, risk varies so much depending on the field of study, the need for learning about it is warranted. As can be imagined, the importance of risk in a market economy is crucial. In the 1990s, JP Morgan made the Value at Risk (VaR) a central component of its work efforts (Cecilia-Nicoleta, Anne-Marie, & Carmen-Maria, 2011).

For each measure, I attempt to build the best empirical mapping as made available by my data. First, I calculate a firm’s value by adding the book value of debt to the market value of equity. I measure profitability as net income over firm value, financial leverage as book debt over market equity, capitalization as book equity over assets, growth as market equity over book equity, and volatility as the quarterly standard deviation of daily log returns. For ease of replication, I collect these variable definitions into the appendix. Note that although the growth variable appears similar to the usual Tobin’s q measure of non-bank firms, banks by design have a large proportion of their assets held as debt in the form of deposits, so the usual approximation of neglecting liabilities does not apply. For bank-specific variables, I also compute total income as non-interest income plus net interest income. I construct the non-interest income ratio (NIIR) by dividing non-interest income by total income, the non-bank subsidiary ratio (NBSR) by dividing the count of non-bank subsidiaries (NAICS codes not equal to 5221) by total subsidiaries, and normalize loans and debt by dividing by value. All figures use the fullest available information. All tables drop all observations missing any relevant variables. I report all ratios in percentage terms. To control for outliers outside the scope of this paper, all ratios are winsorized at the 1% level, where the sample is across all available bank-quarters in the

We see the banking industry as a good opportunity for investors because there will be a combination of changes that will affect the banking industry, including rising interest rates, a less zealous regulatory environment, tax cuts. Yet, the news is only one of the determinant factors, investigation of the entire industry is necessary before buying stocks. First, the threat of new entrants in the banking industry is medium because opening up a small bank working on the local level is feasible, but what makes it hard to survive is to earn consumers’ trusts. With less new entrants, the existing firms have more potential of earning profits. Since capital is the essential asset on any banks, the power of suppliers is moderate to high.

351). Besides Ang and Richardson (1993) also Puri (1995) and Kroszner and Rajan (1993) questioned the rationale ‘conflict of interest’. Before Ang and Richardson’s studies there have been few studies on the quality of the securities issued by affiliates during that time period. Moore (1934) addressed the question analyzing the performance of securities issued by the eight largest investment banks and bank affiliates from 1925 to 1932. His study proved that the issues by affiliates were of worse quality compared to banks. Edwards (1942) in contrary found out that there was no statistically significant difference between the performance issues of security affiliates and investment banks. However, these two studies were limited to a rather small sample and are therefore not explained any further. But Ang and Richardson took the results of the two studies into account in their analysis. (Ang and Richardson, 1993, P.

The American Banking system has always focused on order, resiliency and the ability to withstand the storm. When comparing banking systems, it is required analyze both the strengths and the weaknesses of each system. While examining the American banking system, a key strength that is presented is the pride if its resiliency, “these improvements in the resiliency of the banking system have been reinforced by a series of key capital and liquidity rules that have been enacted in the United States, including the Basel III capital and liquidity frameworks as adopted in more stringent form” (The State of American Banking).

Recent studies have investigated the impact of the 2007-2009 financial crises on banks’ capital. Berger and Bouwman (2011) emphasised the importance of capital during financial crisis. Their empirical study concludes that banks with solid capital base have some benefits during the crisis than those that are poorly capitalised. Well capitalised banks are more able to withstand the shocks due to liquidity squeeze, and therefore had higher chances of surviving the crisis period. Other benefits accrued to well capitalised banks include increase in their market share and profitability, as customers withdrew their funds from less capitalised to a well-capitalised banks. This conclusion was also reinforced by a recent empirical study conducted Olivier de Bandt et al (2014) on a sample of large French banks over a period of 1993 – 2012. Similarly, Gambacorta and Marques-Ibanez (2011) demonstrate the existence of structural changes during the period of financial crisis. They conclude that banks with weaker core capital positions, greater dependence on market funding and on non-interest sources of income restricted the loan supply more strongly during the crisis period. Using a multi-country panel of banks, Demirgüç-Kunt, Detragiache and Merrouche (2010) find among others results, that during

Extensive research has determined that the banking industry is in an unstable state. The industry’s profits have

In this essay I will be addressing the “Too Big To Fail” (TBTF) problem in the current banking system. I will be discussing the risks associated with this policy, and the real problems behind it. I will then examine some solutions that have been proposed to solve the “too big to fail” problem. The policy ‘too big to fail’ refers to the idea that a bank has become so large that its failure could cause a disastrous effect to the rest of the economy, and so the government will provide assistance, in the form of perhaps a bailout/oversee a merger, to prevent this from happening. This is to protect the creditors and allow the bank to continue operating. If a bank does fail then this could cause a domino effect throughout

Financial stability is when your financial plan and system is resistant to economic shocks, it means to be able to manage risks and your arrangement of payments accordingly to your living or lifestyle; it is a widely discussed issue in today 's economy. Financial stability is not a number or class, it 's a state of mind; It 's a sense of comfort or security. Someone that is financially stable won 't

The primary measure used by regulators and analysts to measure a bank’s capital strength is the Tier 1 capital ratio. Analyzing this ratio indicates the strength and the bank’s ability to

This report compares financial performance of two major banks of UK i.e. HSBC Bank Plc and Barclays Bank Plc on the basis of their Balance sheets and profit and loss accounts for the year 2009. This report also provides SWOT analysis of both banks i.e. HSBC and Barclays Bank Plc and provides an insight into their Banking Strategies.

To establish a more effective and competitive UK banking system, the 2011 report of the Independent Commission on Banking (ICB) has come up with different recommendations, the ICB was chaired by Sir John Vickers, this is why the report is also called the ‘Vickers Report’. These recommendations are mainly based on strengthening the stability of the banking system by a combination of measures on the structure and the ability to absorb losses of the banks. It is suggested that some degree of structural separation between investment banking and retail banking is necessary, not only because it can resolve banks in trouble easier, but also avoiding the banking services affecting by international shocks which is beyond the control of the local authorities. On the other hand, banks with a greater loss absorbing capacity will definitely be helpful in strengthening the stability of the banking system. This paper will be focusing on the proposals for ring-fencing and loss absorbency, explaining what these proposals are about and how can they make changes to the banking system. Then by comparing the differences of ring-fencing from other structural reform, and realizing the effect of the loss-absorbency on the banking system, analysis from different views will be made for drawing up a conclusion on whether these proposals can successfully achieve the ultimate goal, which is creating a legal and more stable basis for UK banking in a long term.

For financial institution shareholders, diversification should be a consideration for several reasons (Schmid & Walter, 2012). For instance, financial institutions would want to expand geographically in order to improve its competitive advantage and enhance its capital-allocation position (Schmid & Walter, 2012). Additionally, other considerations include improving efficiencies, taking advantage of inequalities in exchange rates, and providing unified customer service across various geographies (Schmid & Walter, 2012). Although there are increased costs associated with expansions (information, contracting, and regulatory), the benefits are seemingly compensatory and offset these (Schmid & Walter, 2012). Multinational banks, or those with physical operations in multiple countries, can also benefit from an expansion of their operations geographically (Weller & Hersh, 2002).

List of abbreviations List of tables Acknowledgements Abstract 1. 2. 3. 4. 5. 6. 7. 8. Introduction Problem statement Objectives and hypothesis of the study Literature review Structure and performance of the financial sector in