This research provides an insight to the main determinants behind the systematic risk of banks. For this purpose, we use a number of regression models to test the statistical significance of a wide range of bank-specific risk factors. The results indicate that bank equity beta correlates positively with bank size and with the relative volume of loans and intangible assets, and negatively with bank profitability, liquidity levels and loan loss provisions. We find no evidence supporting the traditional hypothesis that lower leveraged banks may be exposed to lower systematic risk. The study refers to the Italian banking system. Our findings are of significance both to bank managers as well as investors, since they will enable them to fully assess the effects of different strategic choices on a bank’s risk profile. We also discuss potential policy implications regarding the impact of the new capital requirements imposed by Basel III in light of the observed risk-leverage relationship.

The Determinants of Systematic Risk in the Italian Banking System: A Cross-Sectional Time Series Analysis

DI BIASE, PASQUALE;D'APOLITO, ELISABETTA
2012

Abstract

This research provides an insight to the main determinants behind the systematic risk of banks. For this purpose, we use a number of regression models to test the statistical significance of a wide range of bank-specific risk factors. The results indicate that bank equity beta correlates positively with bank size and with the relative volume of loans and intangible assets, and negatively with bank profitability, liquidity levels and loan loss provisions. We find no evidence supporting the traditional hypothesis that lower leveraged banks may be exposed to lower systematic risk. The study refers to the Italian banking system. Our findings are of significance both to bank managers as well as investors, since they will enable them to fully assess the effects of different strategic choices on a bank’s risk profile. We also discuss potential policy implications regarding the impact of the new capital requirements imposed by Basel III in light of the observed risk-leverage relationship.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11369/150546
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