Title: Systemic risk and bank crises: lessons from banking industry ratings

Authors: Claudio Calì; Barbara Marchitto; Andrea Resti

Addresses: Economics Department, European Investment Bank, Boulevard Konrad Adenauer, L-2950, Luxembourg ' Economics Department, European Investment Bank, Boulevard Konrad Adenauer, L-2950, Luxembourg ' Department of Finance, Bocconi University, Via Roentgen 1, 20123, Milan, Italy

Abstract: This paper uses banking industry ratings produced by large credit rating agencies to investigate the factors affecting the vulnerability of a banking system. Unlike previous research, which looks at past episodes of systemic distress and uses binary dependent models over wide (and potentially heterogeneous) time windows, we focus on recent years only (2011 and 2012), covering almost 100 countries. Our results, while largely consistent with past studies, include two noteworthy findings. First, although the enactment of capital-based regulations is positively related to bank stability, capital ratios are not in themselves a reliable indicator of a banking system's resilience to systemic shocks. Second, while bank industry ratings adopt a different perspective from sovereign ratings, the latter are still a major driver of the risks faced by national banking industries.

Keywords: banking crises; bank industry ratings; bank resilience; systemic risk; credit rating agencies; banking vulnerability; capital-based regulations; bank stability; capital ratios; systemic shocks; sovereign ratings; banking industry.

DOI: 10.1504/IJBAAF.2014.064321

International Journal of Banking, Accounting and Finance, 2014 Vol.5 No.3, pp.221 - 251

Available online: 14 Aug 2014 *

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