July 2024
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15 Reads
International Review of Financial Analysis
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Publications (23)
March 2024
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43 Reads
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1 Citation
Financial Markets Institutions & Instruments
This paper investigates the effects of the new post-financial crisis regulatory regime – risk-based capital ratios (RBC) and stress tests – on banks' off-balance sheet activities (OBS). We use a panel of US bank holding companies over the period 2001–2018 to examine the relationship between banks' capital levels and OBS activities. Our major finding is that banks significantly reduced their OBS exposure following the introduction of the new capital regulatory framework requirements. In particular, we show that tighter regulatory RBC resulted in a reduction of OBS activities in well-capitalised banks. Conversely, we find that under-capitalised banks increased their OBS activities, which suggests the possibility of regulatory arbitrage.
![Simulation on Random Regular networks with N=50\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$N=50$$\end{document}, a=21\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$a=21$$\end{document}, s=20\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$s=20$$\end{document}, y=75>y⋆\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$y=75>y^\star$$\end{document}. Results are averaged over 10 different realizations, sampled from a directed configuration model. Left panel: extent of contagion; Right panel: system’s distress.](https://www.researchgate.net/publication/376556893/figure/fig1/AS:11431281212632662@1702699260331/Simulation-on-Random-Regular-networks-with-N50documentclass12ptminimal_Q320.jpg)
![Safe region for the ring and the complete networks for different values of τ\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$\tau$$\end{document}.](https://www.researchgate.net/publication/376556893/figure/fig2/AS:11431281212566768@1702699260486/Safe-region-for-the-ring-and-the-complete-networks-for-different-values-of_Q320.jpg)
![Simulation on random regular networks with N=50\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$N=50$$\end{document}, a=21\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$a=21$$\end{document}, s=20\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$s=20$$\end{document}, y=75\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$y=75$$\end{document}. Results are averaged over 10 different realizations sampled from a directed configuration model.](https://www.researchgate.net/publication/376556893/figure/fig3/AS:11431281212614946@1702699260690/Simulation-on-random-regular-networks-with-N50documentclass12ptminimal_Q320.jpg)
![Simulation on Random Regular networks with N=50\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$N=50$$\end{document}, a=21\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$a=21$$\end{document}, s=20\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$s=20$$\end{document}, y=75\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$y=75$$\end{document}. Results are averaged over 10 different realizations sampled from a directed configuration model.](https://www.researchgate.net/publication/376556893/figure/fig4/AS:11431281212566769@1702699260843/Simulation-on-Random-Regular-networks-with-N50documentclass12ptminimal_Q320.jpg)
![Critical shock for the ring and the complete network as a function of η\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$\eta$$\end{document}, see Supplementary Material for the explicit expressions.](https://www.researchgate.net/publication/376556893/figure/fig5/AS:11431281212632664@1702699260999/Critical-shock-for-the-ring-and-the-complete-network-as-a-function-of_Q320.jpg)
December 2023
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38 Reads
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1 Citation
We study the role of contingent convertible bonds (CoCos) in a complex network of interconnected banks. By studying the system’s phase transitions, we reveal that the structure of the interbank network is of fundamental importance for the effectiveness of CoCos as a financial stability enhancing mechanism. Our results show that, under some network structures, the presence of CoCos can increase (and not reduce) financial fragility, because of the occurring of unneeded triggers and consequential suboptimal conversions that damage CoCos investors. We also demonstrate that, in the presence of a moderate financial shock, lightly interconnected financial networks are more robust than highly interconnected networks. This makes them a potentially optimal choice for both CoCos issuers and buyers.
December 2023
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3 Reads
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3 Citations
Economic Modelling
August 2023
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21 Reads
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5 Citations
International Review of Economics & Finance
July 2023
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7 Reads
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2 Citations
Journal of International Financial Markets Institutions and Money
January 2023
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4 Reads
January 2023
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4 Reads
SSRN Electronic Journal
January 2023
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1 Read
April 2022
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53 Reads
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1 Citation
Journal of Banking Regulation
In this paper, we study the effects of supervisory stress test exercises on 19 UK banks over the 2005–2018 period. The novelty of our approach is that we include two stress testing timelines from two banking supervisory authorities. Using a difference-in-difference methodology, in a first step, we analyse the effects of the Bank of England’s stress tests on the lending behaviour of large UK banks. In a second step, for robustness, we also examine the stress tests administered by the European Banking Authority. Our main result is that banks that failed the stress tests reduced lending. Additionally, we show that the effectiveness of the stress tests exercises remained unchanged throughout the period.
Citations (10)
... The positive correlation could be a caution to banks about their speculative use of OBS transactions in the market (Aktan, Chan, Žiković, & Evrim-Mandaci, 2013). If we observe the recent findings particularly post-financial crisis regime, Banks' exposure to OBS was greatly decreased when the new capital regulatory framework criteria were implemented (Calice & Savoia, 2024). ...
- Citing Article
- Full-text available
March 2024
Financial Markets Institutions & Instruments
... The alignment of the RMF with these regulatory requirements also involves cross-departmental collaboration within the bank [AC24,McC24,SS24,RAK24]. To effectively include AI's carbon footprint in the RMF, banks must foster collaboration between AI, sustainability, and risk management teams. ...
- Citing Article
December 2023
Economic Modelling
... For instance, Uribe (1997), Tüzün (2024), and Segura-Rodriguez (2024) analyzed exchange rate data from Argentina, Turkey, and Costa Rica, respectively. Similarly, González et al. (2024), Białkowski andOtten (2011), andAlsubaiei et al. (2024) examined equity mutual funds in Colombia, Poland, and Saudi Arabia. Additionally, Junior and Junior (2017) investigated foreign inflows and the sovereign risk in Brazil. ...
- Citing Article
August 2023
International Review of Economics & Finance
... For example, during the 2007-2008 US subprime crisis, the CDS spreads of leading US banks increased one hundredfold (Wang & Moore, 2012). On the other hand, despite being a small part of the global CDS market, SCDS, widely used as insurance against sovereign debt default risk in developed and developing economies (Gamboa-Estrada & Romero, 2024), has remained active since the European sovereign debt crisis, with a transaction volume of 1.2 billion USD at the end of 2019 (Calice & Lin, 2023). On the other hand, despite making up only a small portion of the global CDS market (Gamboa-Estrada & Romero, 2024), the market has remained active since the European sovereign debt crisis, with a transaction volume of 1.2 billion USD as of the end of 2019 (Calice & Lin, 2023). ...
- Citing Article
July 2023
Journal of International Financial Markets Institutions and Money
... Moreover, traders can employ these factor models to control investment risk. Calice and Lin (2021), In this study, a comprehensive set of risk premia of country equity returns for 45 countries over the sample period 2002 -2018 in both a single and a multiplefactor setting. Using a new three-pass estimation method for factor risk premia by Giglio and Xiu (2021), authors find that several factors, including default risk, are also priced in country equity excess returns, controlled by the Fama-French 5-factor and Carhart models. ...
- Citing Article
- Full-text available
July 2021
Journal of Empirical Finance
... The sovereign risk is reflected in CDS spreads (Aizenman et al., 2013). Investment flows are linked to the sovereign risk, as equity mutual fund inflows tend to decline when sovereign CDS spreads rise (Alsubaiei et al., 2021). Including the CDS spread in the VAR system allowed for an examination of the relationship between local risk, global risk, and uncertainty. ...
- Citing Article
May 2021
Journal of International Financial Markets Institutions and Money
... There is an increasing demand for these funds, especially in Islamic countries. As a result of record oil prices and the technology boom, SCF has grown considerably in recent years (Alsubaiei et al., 2020). MF includes long and shortterm equities, bonds, Socially Responsible Investments (SRI), ethical investments, and other liquid instruments with high-return potentials that can absorb risk (Arifin & Qizam, 2021). ...
- Citing Article
November 2020
European Journal of Finance
... Sovereign Credit Default Swaps (CDS) serve as financial derivatives providing insurance against the risk of sovereign debt defaults, simultaneously interact with exchange rates-the market's valuation of a nation's currency in the global economy (Balima et al. 2023;Foroni et al. 2018;Chernov et al. 2023). These two aspects are crucial determinants of a country's external creditworthiness, financial stability and overall economic health (Calice and Zeng, 2021). Alterations in sovereign credit ratings can precipitate shifts in international investor sentiment, influencing the country's currency demand. ...
- Citing Article
- Publisher preview available
December 2019
... Similarly, right after the Ankara Train Station attack, which is considered the biggest terrorist attack in the history of the country, the exchange rate of USD/TRY changed by about 1.15%, while the increase in Turkey's CDS premium was 3.5%. Sovereign CDS premiums, which investors use as a hedging tool against the default risk of bond issuers, can be viewed as a forward-looking measure of idiosyncratic sovereign default risk as perceived by fi nancial markets (Calice et al, 2014), and, therefore, may off er a good measure of the potential economic fears triggered by terrorism. In regard to the sovereign risk of the country, the hitherto literature has shown the sensitivity of sovereign CDS premiums to several economic and fi nancial indicators. ...
- Citing Article
April 2015
Journal of Empirical Finance
... Berndt and Obreja (2010) and Chen and Härdle (2015) analyzed the impact of some financial variables on individual CDS spreads and CDS indices, respectively. Calice (2014) investigated the linkages between the CDS index market and the equity returns of a sample of systemically important financial institutions, uncovering three key findings. First, the equity returns for all systematically important institutions were inversely associated to shocks in the CDS index market. ...
- Citing Article
September 2014
Journal of International Financial Markets Institutions and Money