IDEAS home Printed from https://ideas.repec.org/a/bla/irvfin/v15y2015i1p89-111.html
   My bibliography  Save this article

The Global Financial Crisis and Its Impact on Australian Bank Risk

Author

Listed:
  • Bernard Bollen
  • Michael Skully
  • David Tripe
  • Xiaoting Wei

Abstract

This paper examines the global financial crisis (GFC) and its impact on Australian banking risk. An augmented market model is developed to identify changes in listed Australian bank systematic risk in relation to three key events: the GFC's start in August 2007, the market downturn in Australian and global share markets in January 2008, and the announcement of Australia's Deposit and Wholesale Funding Guarantee (DWFG) scheme on 12 October 2008. The study also examines changes in bank systemic risk during these event periods. The Australian market offers a unique opportunity to observe the impact of the introduction of the DWFG in that it lacked any explicit deposit insurance prior to the crisis. Initially, the crisis period had little impact on bank systematic risk while bank systemic risk increased considerably. The share market downturn caused a marked increase in both systematic and systemic risks for Australia's major internationally connected banks followed by a reduction in both systematic and systemic risks with the introduction of the guarantee scheme for all Australian banks.

Suggested Citation

  • Bernard Bollen & Michael Skully & David Tripe & Xiaoting Wei, 2015. "The Global Financial Crisis and Its Impact on Australian Bank Risk," International Review of Finance, International Review of Finance Ltd., vol. 15(1), pages 89-111, March.
    • Handle: RePEc:bla:irvfin:v:15:y:2015:i:1:p:89-111
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/irfi.12041
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. David C. Wheelock & Paul W. Wilson, 1994. "Can deposit insurance increase the risk of bank failure? Some historical evidence," Review, Federal Reserve Bank of St. Louis, issue May, pages 57-71.
    2. Acharya, Viral V., 2009. "A theory of systemic risk and design of prudential bank regulation," Journal of Financial Stability, Elsevier, vol. 5(3), pages 224-255, September.
    3. Ting-Fang Chiang & E-Ching Wu & Min-Teh Yu, 2007. "Premium setting and bank behavior in a voluntary deposit insurance scheme," Review of Quantitative Finance and Accounting, Springer, vol. 29(2), pages 205-222, August.
    4. Reint Gropp & Jukka Vesala, 2004. "Deposit Insurance, Moral Hazard and Market Monitoring," Review of Finance, European Finance Association, vol. 8(4), pages 571-602.
    5. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
    6. John D. Wagster, 2007. "Wealth and Risk Effects of Adopting Deposit Insurance in Canada: Evidence of Risk Shifting by Banks and Trust Companies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1651-1681, October.
    7. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    8. Fries, Steven & Mella-Barral, Pierre & Perraudin, William, 1997. "Optimal bank reorganization and the fair pricing of deposit guarantees," Journal of Banking & Finance, Elsevier, vol. 21(4), pages 441-468, April.
    9. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
    10. repec:bla:jecsur:v:20:y:2006:i:3:p:459-482 is not listed on IDEAS
    11. Lawrence G. Goldberg & T. Harikumar, 1991. "Risk-Taking Incentives Of Banks And Risk-Adjusted Deposit Insurance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 14(3), pages 233-239, September.
    12. Gueyie, Jean-Pierre & Lai, Van Son, 2003. "Bank moral hazard and the introduction of official deposit insurance in Canada," International Review of Economics & Finance, Elsevier, vol. 12(2), pages 247-273.
    13. repec:bla:jfinan:v:44:y:1989:i:5:p:1313-33 is not listed on IDEAS
    14. Carl Schwartz, 2010. "The Australian Government Guarantee Scheme," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 19-26, March.
    15. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    16. Estrada, Javier, 2007. "Mean-semivariance behavior: Downside risk and capital asset pricing," International Review of Economics & Finance, Elsevier, vol. 16(2), pages 169-185.
    17. Chan, Yuk-Shee & Greenbaum, Stuart I & Thakor, Anjan V, 1992. "Is Fairly Priced Deposit Insurance Possible?," Journal of Finance, American Finance Association, vol. 47(1), pages 227-245, March.
    18. Goldberg, Lawrence G & Harikumar, T, 1991. "Risk-Taking Incentives of Banks and Risk-Adjusted Deposit Insurance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 14(3), pages 233-239, Fall.
    19. Angkinand, Apanard & Wihlborg, Clas, 2010. "Deposit insurance coverage, ownership, and banks' risk-taking in emerging markets," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 252-274, March.
    20. Asli Demirguc-Kunt & Edward J. Kane, 2002. "Deposit Insurance Around the Globe: Where Does It Work?," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 175-195, Spring.
    21. Horvitz, Paul M., 1975. "Failures of Large Banks: Implications for Banking Supervision and Deposit Insurance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(4), pages 589-601, November.
    22. Xing Yan & Michael Skully & Katherine Avram & Tram Vu, 2014. "Market Discipline and Deposit Guarantee: Evidence from Australian Banks," International Review of Finance, International Review of Finance Ltd., vol. 14(3), pages 431-457, September.
    23. Estrada, Javier, 2002. "Systematic risk in emerging markets: the," Emerging Markets Review, Elsevier, vol. 3(4), pages 365-379, December.
    24. John J. Binder, 1985. "Measuring the Effects of Regulation with Stock Price Data," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 167-183, Summer.
    25. Sebastian Schich, 2009. "Expanded government guarantees for bank liabilities: Selected issues," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2009(1), pages 89-123.
    26. Sebastian Schich, 2008. "Financial turbulence: Some lessons regarding deposit insurance," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2008(1), pages 55-79.
    27. Randall Morck & Bernard Yeung & Wayne Yu, 2013. "R 2 and the Economy," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 143-166, November.
    28. Ronn, Ehud I. & Verma, Avinash K., 1989. "Risk-based capital adequacy standards for a sample of 43 major banks," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 21-29, March.
    29. Alexei Karas & William Pyle & Koen Schoors, 2013. "Deposit Insurance, Banking Crises, and Market Discipline: Evidence from a Natural Experiment on Deposit Flows and Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 179-200, February.
    30. Haq, Mamiza & Heaney, Richard, 2009. "European bank equity risk: 1995-2006," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(2), pages 274-288, April.
    31. Bundt, Thomas P. & Cosimano, Thomas F. & Halloran, John A., 1992. "DIDMCA and bank market risk: Theory and evidence," Journal of Banking & Finance, Elsevier, vol. 16(6), pages 1179-1193, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mamiza Haq & Necmi K. Avkiran & Amine Tarazi, 2019. "Does market discipline impact bank charter value? The case for Australia and Canada," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(1), pages 253-276, March.
    2. Necmi K. Avkiran & Yushu Zhu & David W. L. Tripe & Kathleen Walsh, 2017. "Can foreign banks compete in China?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(4), pages 961-980, December.
    3. Necmi Kemal Avkiran & Lin Mi, 2017. "The Rising Systemic Importance of Chinese Banks: Should the World Be Concerned?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 50(4), pages 427-440, December.
    4. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2016. "Emerging trends in Asia-Pacific finance research: A review of recent influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 66-76.
    5. Rahman, Md Lutfur & Troster, Victor & Uddin, Gazi Salah & Yahya, Muhammad, 2022. "Systemic risk contribution of banks and non-bank financial institutions across frequencies: The Australian experience," International Review of Financial Analysis, Elsevier, vol. 79(C).
    6. Seza Danışoğlu & Z. Nuray Güner & Hande Ayaydın Hacıömeroğlu, 2018. "International Evidence on Risk Taking by Banks Around the Global Financial Crisis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(9), pages 1946-1962, July.
    7. Luong, Thi Mai & Pieters, Russell & Scheule, Harald & Wu, Eliza, 2020. "The impact of government guarantees on banks' wholesale funding costs and lending behavior: Evidence from a natural experiment," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    8. Casavecchia, Lorenzo & Loudon, Geoffrey F. & Wu, Eliza, 2018. "What moves benchmark money market rates? Evidence from the BBSW market," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 137-154.
    9. Thi Mai Luong, 2020. "Selection Effects of Lender and Borrower Choices on Risk Measurement, Management and Prudential Regulation," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 3-2020, January-A.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Wang & Zhang, Zhiwen & Hamori, Shigeyuki & Kinkyo, Takuji, 2021. "Not all bank systemic risks are alike: Deposit insurance and bank risk revisited," International Review of Financial Analysis, Elsevier, vol. 77(C).
    2. Anginer, Deniz & Demirguc-Kunt, Asli & Zhu, Min, 2014. "How does deposit insurance affect bank risk? Evidence from the recent crisis," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 312-321.
    3. Morrison, Alan D. & White, Lucy, 2011. "Deposit insurance and subsidized recapitalizations," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3400-3416.
    4. Ji, Yang & Bian, Wenlong & Huang, Yiping, 2018. "Deposit insurance, bank exit, and spillover effects," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 268-276.
    5. Godspower-Akpomiemie, Euphemia & Ojah, Kalu, 2021. "Market discipline, regulation and banking effectiveness: Do measures matter?," Journal of Banking & Finance, Elsevier, vol. 133(C).
    6. Essid, Zina & Boujelbene, Younes & Plihon, Dominique, 2014. "Institutional quality and bank instability: cross-countries evidence in emerging countries," MPRA Paper 56251, University Library of Munich, Germany.
    7. Alexei Karas & William Pyle & Koen Schoors, 2021. "Deposit Insurance, Moral Hazard and Bank Risk," CESifo Working Paper Series 8867, CESifo.
    8. Li, Gan & Wen-Yao, Wang, 2010. "Partial Deposit Insurance and Moral Hazard in Banking," MPRA Paper 25798, University Library of Munich, Germany.
    9. Klüh, Ulrich, 2005. "Safety Net Design and Systemic Risk: New Empirical Evidence," Discussion Papers in Economics 662, University of Munich, Department of Economics.
    10. Hoque, Hafiz & Andriosopoulos, Dimitris & Andriosopoulos, Kostas & Douady, Raphael, 2015. "Bank regulation, risk and return: Evidence from the credit and sovereign debt crises," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 455-474.
    11. Demirgüç-Kunt, Asli & Kane, Edward J. & Laeven, Luc, 2008. "Determinants of deposit-insurance adoption and design," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 407-438, July.
    12. Luong, Thi Mai & Pieters, Russell & Scheule, Harald & Wu, Eliza, 2020. "The impact of government guarantees on banks' wholesale funding costs and lending behavior: Evidence from a natural experiment," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    13. Thi Mai Luong, 2020. "Selection Effects of Lender and Borrower Choices on Risk Measurement, Management and Prudential Regulation," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 3-2020, January-A.
    14. Pham Thi Chi & Dao Thanh Binh, 2020. "Deposit Insurance and Bank Risks in Vietnam," Business and Economic Research, Macrothink Institute, vol. 10(2), pages 46-63, June.
    15. Delis, Manthos D. & Iosifidi, Maria & Papadopoulos, Panagiotis, 2022. "Blessing or curse? Government funding of deposit insurance and corporate lending," Journal of Financial Stability, Elsevier, vol. 61(C).
    16. Beck, Thorsten, 2008. "Bank competition and financial stability : friends or foes ?," Policy Research Working Paper Series 4656, The World Bank.
    17. Quintero-V, Juan C., 2023. "Deposit insurance and market discipline," Journal of Financial Stability, Elsevier, vol. 64(C).
    18. Noman, Abu Hanifa Md. & Hassan, M. Kabir & Pervin, Sajeda & Isa, Che Ruhana & Sok-gee, Chan, 2022. "The mediating role of competition on deposit insurance and the risk-taking of banks in ASEAN countries," Research in International Business and Finance, Elsevier, vol. 59(C).
    19. Charles W. Calomiris & Matthew Jaremski, 2016. "Deposit Insurance: Theories and Facts," Annual Review of Financial Economics, Annual Reviews, vol. 8(1), pages 97-120, October.
    20. Delis, Manthos & Iosifidi, Maria & Papadopoulos, Panagiotis, 2020. "Blessing or curse? Government funding of deposit insurance and corporate lending," MPRA Paper 99153, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:irvfin:v:15:y:2015:i:1:p:89-111. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1369-412X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.