Systemic risk, bank charter value, capital structure and international complexity : evidence from developed countries.

Summary This thesis aims to contribute to the debate on systemic risk and its negative consequences on the real economy, and to the debate on the implementation of an effective macro-prudential regulation (systemic effects) for the banking industry aiming at financial stability. To this end, this work contributes to the existing literature through several aspects. In the first chapter of this thesis, on a sample of OECD banks, we study how the value of the franchise affects bank risk before, during and after the global financial crisis of 2007-2008, using individual and systemic risk measures. We re-examine the bank franchise value hypothesis and its disciplining role with respect to risk-taking and expansion at systemic risk before, during and after the financial crisis. We show that before the crisis, the value of the bank franchise positively impacts risk taking and systemic risk not only of the very large "too-big-too-fail" banks but also of the large European and American banks. However, our results show that during and after the crisis, this effect is reversed. Considering the pre-crisis period, we further investigate the relationship between franchise value on the one hand and risk-taking and systemic risk exposure on the other, taking into account the effects of differences in risk-taking cultures, bank size and banking strategies. The second chapter analyzes the dynamics of banks' capital structure as a function of their level of internal targeted and/or external imposed capital. Specifically, it examines several characteristics. (i) whether market frictions and capital adjustment costs are more significant when adjusting regulatory capital ratios relative to a simple leverage ratio (ii) the adjustment mechanisms used by banks to adjust their capital ratios. (iii) how the speed of adjustment and the adjustment mechanisms differ between large and complex systemic banks on the one hand and less systemic banks on the other. The results suggest that banks are more flexible and faster in adjusting their leverage ratios than in adjusting their regulatory capital ratios. While systemically important banks (SIFIs) are less responsive than other banks in adjusting their target leverage ratio, they are nonetheless faster in reaching their regulatory target ratios. Other investigations show that SIFIs may be more reluctant to change their capital base by issuing or repurchasing shares and prefer a larger reduction or faster expansion of their size. In the final chapter, we analyze how the international organizational structure and geographic expansion of 105 listed European banks with subsidiaries around the world might affect their systemic importance over the period 2005-2013. We also examine how the peak of the 2008-2009 global financial crisis and the magnitude of the 2010-2011 European sovereign debt crisis might have affected these relationships. We show that internationalization and organizational complexity are important drivers of banking systemic risk, particularly during the 2008-2013 financial stress years.