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Systemic Risk in the Banking Industry of the United States

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Systemic Risk in the Banking Industry of the United States

Gao, Weiyu (2013) Systemic Risk in the Banking Industry of the United States. Masters thesis, Concordia University.

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Abstract

Abstract
Systemic Risk in the Banking Industry of the United States
Weiyu Gao
In this thesis, I estimate the systemic risk in the U.S. banking industry and the effects of a financial regulation and an event on the financial health and stability of U. S. banks. The financial regulation and event are respectively Basel I and the U.S. sub-prime mortgage financial crisis which are captured by two dummy variables. I estimate systemic risk using the definition which considers a systemic crisis as an event causing a simultaneous default of a significant number of financial institutions. Thus, the systemic risk here is the simultaneous probability of default of a certain number of financial institutions. Next, I form two systemic risk indices, including the default probability based on bank assets and the default probability based on the number of banks. I investigate the sources of systemic risk and address the factors which are significantly related to the stability of the banking system. In order to conduct this investigation, I establish two categories of variables related to systemic factors and bank specific factors. The systemic factors include the median correlation of assets, volatility of assets and capitalization while the bank specific factors consist of time trend, bank size and the ratio of book value of equity to total assets. The regression analyses are applied between the systemic risk indices and the systemic/ bank specific factors. The results suggest that Basel I does not effectively improve the stability of the banking system and that the financial crisis contributes to systemic risk. The volatility of assets and capitalization are significantly related to the systemic risk indices. Although the systemic factors perform better than the bank specific factors in explaining the systemic risk indices, bank size is also a significant explanatory factor.

Divisions:Concordia University > John Molson School of Business
Item Type:Thesis (Masters)
Authors:Gao, Weiyu
Institution:Concordia University
Degree Name:M. Sc.
Program:Administration (Finance option)
Date:5 September 2013
Thesis Supervisor(s):Shanker, Latha
ID Code:977637
Deposited By: WEIYU GAO
Deposited On:26 Nov 2013 15:48
Last Modified:18 Jan 2018 17:44
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