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Mortgage-Related Bank Penalties and Systemic Risk Among U.S. Banks

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  • Vaclav Broz

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)

  • Evzen Kocenda

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)

Abstract

We analyze link between mortgage-related regulatory penalties levied on banks and the level of systemic risk in the U.S. banking industry. We employ a frequency decomposition of volatility spillovers to draw conclusions about system-wide risk transmission with short-, medium-, and long-term dynamics. We find that after the possibility of a penalty is first announced to the public, long-term systemic risk among banks tends to increase. In contrast, a settlement with regulatory authorities leads to a decrease in the long-term systemic risk. Our analysis is relevant both to authorities imposing penalties as well as to those in charge of financial stability.

Suggested Citation

  • Vaclav Broz & Evzen Kocenda, 2019. "Mortgage-Related Bank Penalties and Systemic Risk Among U.S. Banks," Working Papers IES 2019/25, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2019.
    • Handle: RePEc:fau:wpaper:wp2019_25
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    More about this item

    Keywords

    Bank; financial stability; global financial crisis; mortgage; penalty; systemic risk;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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