Publicação
Essays on financial cycles and banks' risk
| Resumo: | This thesis consists of a compilation of three separate and self-contained articles: A. Measuring Financial Cycles: Empirical Evidence for Germany, United Kingdom and United States of America This study contributes to the literature by identifying the most appropriate factor to detect and measure Financial Cycles, similar to Gross Domestic Product (GDP) for Business Cycles. Four financial variables were included in the study: Credit, House Prices, Share Prices and Interest Rates. The filter used to estimate and extract the cycles from the original time series was the Christiano and Fitzgerald (2003)'s one. Then, three methods, namely the Concordance Index, the Granger Causality Test and the AUROC Test, were used to identify which of the four variables is the most accurate proxy to measure and estimate financial cycles. In all of them, the results pointed to the same variable: Share Prices. A comparison between Share Prices and GDP shows a higher capacity of the financial variable to predict financial and economic crises, which justifies the recent increasing interest of macroprudential policymakers on Financial Cycles. Our conclusions are robust to different time periods and alternative filtering procedures. B. Banking regulation and banks' risk-taking behavior: The role of political institutions This paper examines whether the influence of banking regulation on banks' risk is channeled through the quality of political institutions, using panel data from a sample of 535 banks from OECD countries, for the 2004 - 2016 period. As banking regulatory factors, we consider activity restrictions, capital stringency and supervisory power. We find that the overall effect of banking regulation on banks' risk is conditional on the quality of political institutions. Activity restrictions and capital stringency have a statistically significant positive effect on banks' risk and this effect is mitigated by better political institutions. On the contrary, stringent supervisory power tends to reduce banks' risk and better political institutions reinforce this effect. The results are robust across different measures of political institutions, banks' risk and estimation methods. C. Banking regulation and banks' risk-taking behavior: The role of investors’ protection This paper examines whether the influence of banking regulation on banks' risk is channeled through the level of investors' protection, using panel data from a sample of 535 banks from OECD countries, for the 2004 - 2016 period. As banking regulatory factors, we consider activity restrictions, capital stringency and supervisory power. We find that the overall effect of banking regulation on banks' risk is conditional on the level of investors' protection, with investor protection playing the role of reinforcing each of these individual effects. Investor protection reinforces the positive effect of activity restrictions and capital stringency on banks' risk and reinforces the negative effect of supervisory power on this risk. These results are robust to a different estimation method and a different proxy for banks' risk. Additional robustness tests reveal that some of the banking regulation effects are contingent on banks' size and the systemic banking crisis period. |
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| Autores principais: | Dutra, Tiago Mota |
| Assunto: | Financial cycles Banks' risk Banking regulation Political institutions Investors' protection Ciclos financeiros Risco dos bancos Regulação bancária Instituições políticas Proteção dos investidores |
| Ano: | 2021 |
| País: | Portugal |
| Tipo de documento: | tese de doutoramento |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | ISCTE |
| Idioma: | inglês |
| Origem: | Repositório ISCTE |
| Resumo: | This thesis consists of a compilation of three separate and self-contained articles: A. Measuring Financial Cycles: Empirical Evidence for Germany, United Kingdom and United States of America This study contributes to the literature by identifying the most appropriate factor to detect and measure Financial Cycles, similar to Gross Domestic Product (GDP) for Business Cycles. Four financial variables were included in the study: Credit, House Prices, Share Prices and Interest Rates. The filter used to estimate and extract the cycles from the original time series was the Christiano and Fitzgerald (2003)'s one. Then, three methods, namely the Concordance Index, the Granger Causality Test and the AUROC Test, were used to identify which of the four variables is the most accurate proxy to measure and estimate financial cycles. In all of them, the results pointed to the same variable: Share Prices. A comparison between Share Prices and GDP shows a higher capacity of the financial variable to predict financial and economic crises, which justifies the recent increasing interest of macroprudential policymakers on Financial Cycles. Our conclusions are robust to different time periods and alternative filtering procedures. B. Banking regulation and banks' risk-taking behavior: The role of political institutions This paper examines whether the influence of banking regulation on banks' risk is channeled through the quality of political institutions, using panel data from a sample of 535 banks from OECD countries, for the 2004 - 2016 period. As banking regulatory factors, we consider activity restrictions, capital stringency and supervisory power. We find that the overall effect of banking regulation on banks' risk is conditional on the quality of political institutions. Activity restrictions and capital stringency have a statistically significant positive effect on banks' risk and this effect is mitigated by better political institutions. On the contrary, stringent supervisory power tends to reduce banks' risk and better political institutions reinforce this effect. The results are robust across different measures of political institutions, banks' risk and estimation methods. C. Banking regulation and banks' risk-taking behavior: The role of investors’ protection This paper examines whether the influence of banking regulation on banks' risk is channeled through the level of investors' protection, using panel data from a sample of 535 banks from OECD countries, for the 2004 - 2016 period. As banking regulatory factors, we consider activity restrictions, capital stringency and supervisory power. We find that the overall effect of banking regulation on banks' risk is conditional on the level of investors' protection, with investor protection playing the role of reinforcing each of these individual effects. Investor protection reinforces the positive effect of activity restrictions and capital stringency on banks' risk and reinforces the negative effect of supervisory power on this risk. These results are robust to a different estimation method and a different proxy for banks' risk. Additional robustness tests reveal that some of the banking regulation effects are contingent on banks' size and the systemic banking crisis period. |
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