Peer-Group Detection of Banks and Resilience to Distress

IMT LUCCA EIC WORKING PAPER SERIES 06 December 2016

85 Pages Posted: 8 Dec 2016 Last revised: 14 Dec 2016

See all articles by Andrea Flori

Andrea Flori

Politecnico di Milano; Department of Management, Economics and Industrial Engineering

Simone Giansante

University of Bath - School of Management

Fabio Pammolli

IMT Institute for Advanced Studies

Date Written: December 7, 2016

Abstract

The paper looks at the importance of the true business model in shaping the risk profile of financial institutions. We adopt a novel indirect clustering approach to enrich the classic bank business model classification on a global data set including about 11,000 banks, both listed and non-listed representing more than 180 countries over the period 2005-2014. A comprehensive list of global distress events, which combines bankruptcies, liquidations, defaults, distressed mergers, and public bailouts, is regressed against financial statement ratios (i.e. proxies for CAMELS) and controlling for macro and sectoral effects using a rare-event logit model. Our findings suggest that individual characteristics along with macro and sectoral factors contribute differently, sometimes with opposite sign, to the likelihood of distress and to the volatility of business models with the exception of liquidity whose contribution appears exogenous to business model choice. By capturing the switching behaviour across groups, we find that business model volatility exacerbates vulnerability and distress, especially if moving from wholesale-oriented to deposit oriented groups.

Keywords: Peer Group Risk Assessment; Bank Distress; Bank Business Models; Financial Crisis; Bank Balance Sheets

JEL Classification: F01; G01; G21; G28; G33

Suggested Citation

Flori, Andrea and Giansante, Simone and Pammolli, Fabio, Peer-Group Detection of Banks and Resilience to Distress (December 7, 2016). IMT LUCCA EIC WORKING PAPER SERIES 06 December 2016, Available at SSRN: https://ssrn.com/abstract=2881923 or http://dx.doi.org/10.2139/ssrn.2881923

Andrea Flori

Politecnico di Milano ( email )

via Lambruschini 4/B
Milano, Italy 20156
Italy

Department of Management, Economics and Industrial Engineering ( email )

Via Lambruschini 4/B - building 26/b
Milano, 20156
Italy

Simone Giansante (Contact Author)

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

HOME PAGE: http://people.bath.ac.uk/sg473/index.html

Fabio Pammolli

IMT Institute for Advanced Studies ( email )

Complesso San Micheletto
Lucca, 55100
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
82
Abstract Views
560
rank
356,881
PlumX Metrics