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From the credit crisis to the sovereign debt crisis: Determinants of share price performance of global banks

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  • Hoque, Hafiz

Abstract

We compare and contrast the determinants of the share price performance of global banks in the credit crisis and the sovereign debt crisis. Higher loans and funding fragility, as measured by short-term funding, explain performance in the credit crisis, as banks could obtain short-term finance and hence take risks by lending more. In contrast, in the sovereign debt crisis banks with higher capital, tangible equity, deposit, lower agency problem, and smaller boards performed well. The banks that increased regulatory capital as per the policy prescription, relied more on deposit financing, and decreased board size performed well in the sovereign debt crisis. Interestingly, deposit insurance is negatively related to the performance in the sovereign debt crisis, as the governments were closer to default. We find some similarities in the share price performances of banks across these two crises. Beta and idiosyncratic risk explain the share price performances of banks in both the crises. We further examine the effect of regulations on risk, as returns should be compensation for taking risks. We find that banks in countries with higher restrictions and higher tier I capital are less risky, while countries with deposit insurance are more risky.

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  • Hoque, Hafiz, 2013. "From the credit crisis to the sovereign debt crisis: Determinants of share price performance of global banks," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 334-350.
  • Handle: RePEc:eee:finana:v:30:y:2013:i:c:p:334-350
    DOI: 10.1016/j.irfa.2013.07.017
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    3. Mollah, Sabur & Liljeblom, Eva, 2016. "Governance and bank characteristics in the credit and sovereign debt crises – the impact of CEO power11We are grateful to the Editor, Prof. Iftekhar Hasan and three anonymous referees for valuable com," Journal of Financial Stability, Elsevier, vol. 27(C), pages 59-73.
    4. 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.
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    7. Meier, Samira & Rodriguez Gonzalez, Miguel & Kunze, Frederik, 2021. "The global financial crisis, the EMU sovereign debt crisis and international financial regulation: lessons from a systematic literature review," International Review of Law and Economics, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Global banks; Financial crisis; Board characteristics; Regulation; Capital; Funding fragility;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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