Forward-looking tail risk exposures at US bank holding companies

M. Knaup, W.B. Wagner

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper develops a simple method for quantifying banks’ exposures to large (negative) shocks in a forward-looking manner. The method is based on estimating banks’ share prices sensitivities to (market) put options and does not require the actual observation of tail risk events. We find that estimated (excess) tail risk exposures for U.S. Bank Holding Companies are negatively correlated with their share price beta, suggesting that banks which appear safer in normal periods are actually more crisis prone than their beta would suggest. We also study the determinants of banks’ tail risk exposures and find that their key drivers are uninsured deposits and non-traditional activities that leave assets on banks’ balance sheets.
Original languageEnglish
Pages (from-to)35-54
JournalJournal of Financial Services Research
Volume42
Issue number1-2
DOIs
Publication statusPublished - Oct 2012

Fingerprint

Tail risk
Bank holding companies
Risk exposure
Share prices
Balance sheet
Deposits
Assets
Price sensitivity
Put option
Nontraditional

Keywords

  • tail risk
  • forward-looking
  • banks
  • systemic crisis

Cite this

Knaup, M. ; Wagner, W.B. / Forward-looking tail risk exposures at US bank holding companies. In: Journal of Financial Services Research. 2012 ; Vol. 42, No. 1-2. pp. 35-54.
@article{f3b90c080d1440f194f406d81223f2c8,
title = "Forward-looking tail risk exposures at US bank holding companies",
abstract = "This paper develops a simple method for quantifying banks’ exposures to large (negative) shocks in a forward-looking manner. The method is based on estimating banks’ share prices sensitivities to (market) put options and does not require the actual observation of tail risk events. We find that estimated (excess) tail risk exposures for U.S. Bank Holding Companies are negatively correlated with their share price beta, suggesting that banks which appear safer in normal periods are actually more crisis prone than their beta would suggest. We also study the determinants of banks’ tail risk exposures and find that their key drivers are uninsured deposits and non-traditional activities that leave assets on banks’ balance sheets.",
keywords = "tail risk, forward-looking, banks, systemic crisis",
author = "M. Knaup and W.B. Wagner",
year = "2012",
month = "10",
doi = "10.1007{\%}2Fs10693-012-0131-5",
language = "English",
volume = "42",
pages = "35--54",
journal = "Journal of Financial Services Research",
issn = "0920-8550",
publisher = "Springer Netherlands",
number = "1-2",

}

Forward-looking tail risk exposures at US bank holding companies. / Knaup, M.; Wagner, W.B.

In: Journal of Financial Services Research, Vol. 42, No. 1-2, 10.2012, p. 35-54.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Forward-looking tail risk exposures at US bank holding companies

AU - Knaup, M.

AU - Wagner, W.B.

PY - 2012/10

Y1 - 2012/10

N2 - This paper develops a simple method for quantifying banks’ exposures to large (negative) shocks in a forward-looking manner. The method is based on estimating banks’ share prices sensitivities to (market) put options and does not require the actual observation of tail risk events. We find that estimated (excess) tail risk exposures for U.S. Bank Holding Companies are negatively correlated with their share price beta, suggesting that banks which appear safer in normal periods are actually more crisis prone than their beta would suggest. We also study the determinants of banks’ tail risk exposures and find that their key drivers are uninsured deposits and non-traditional activities that leave assets on banks’ balance sheets.

AB - This paper develops a simple method for quantifying banks’ exposures to large (negative) shocks in a forward-looking manner. The method is based on estimating banks’ share prices sensitivities to (market) put options and does not require the actual observation of tail risk events. We find that estimated (excess) tail risk exposures for U.S. Bank Holding Companies are negatively correlated with their share price beta, suggesting that banks which appear safer in normal periods are actually more crisis prone than their beta would suggest. We also study the determinants of banks’ tail risk exposures and find that their key drivers are uninsured deposits and non-traditional activities that leave assets on banks’ balance sheets.

KW - tail risk

KW - forward-looking

KW - banks

KW - systemic crisis

U2 - 10.1007%2Fs10693-012-0131-5

DO - 10.1007%2Fs10693-012-0131-5

M3 - Article

VL - 42

SP - 35

EP - 54

JO - Journal of Financial Services Research

JF - Journal of Financial Services Research

SN - 0920-8550

IS - 1-2

ER -