This paper finds noninterest income is positively correlated with the total systemic risk for U.S. banks. Decomposing total systemic risk into three components, we find that noninterest income is positively related to a bank’s tail risk, positively related to a bank’s interconnectedness risk, and an insignificantly related to a bank’s exposure to macroeconomic and finance factors. We also find that noninterest income is more volatile and negatively related to interest income. Finally, we find trading and other noninterest income to be positively correlated with systemic risk. Other noninterest income, compared with trading income, has a slightly larger economic impact. (JEL G01, G18, G20, G21, G32, G38) Received October 31, 2019; editorial decision February 3, 2020 by Editor Andrew Ellul

Exploiting staggered interstate banking deregulation as exogenous shocks to bank geographic expansion, we examine the causal effect of geographic diversification on systemic risk. Using the gravity-deregulation approach, we find that bank geographic diversification leads to higher systemic risk measured by the change in conditional value at risk (ΔCoVaR) and financial integration (Logistic(R^2)). Furthermore, we document that geographic diversification affects systemic risk via its impact on asset similarity. The impact of geographic diversification on systemic risk is stronger in BHCs located in states comoving less with the U.S. aggregate economy

This paper investigates the effectiveness of macroprudential policy to contain the systemic risk of European banks between 2000 and 2017. We use a new database (MaPPED) collected by experts at the ECB and national central banks with narrative information on a broad range of instruments which are tracked over their life cycle. Using a dynamic panel framework at a monthly frequency we assess the impact of macroprudential tools and their design on the banks’ systemic risk both in the short and the long run. We furthermore decompose the systemic risk measure in an individual bank risk component and a systemic linkage component. This is of particular interest because microprudential policy focuses on the tail risk of an individual bank while macroprudential policy targets systemic risk by addressing the interlinkages and common exposures across banks. In general, the announcements of macroprudential policy actions have a downward effect on bank systemic risk. On average, all banks benefit from macroprudential tools in terms of their individual risk. We find that credit growth tools and exposure limits exhibit the most pronounced downward effect on the individual risk component. However, we find evidence for a risk-shifting effect which is more pronounced for retail-oriented banks. The effects are heterogeneous across banks with respect to the systemic linkage component. Liquidity tools and measures aimed at increasing the resilience of banks decrease the systemic linkage of banks. Moreover, these tools appear to be most effective for distressed banks. Our results have implications for the optimal design of macroprudential instruments

This paper aims to assess the level of systemic risk of China's financial system along with the main systemic risk contributors over the period from January 2010 to December 2016, a period spanning the deflation of China's property bubble, the banking liquidity crisis, and the stock market crash. To this end we divide the financial system into three sectors, namely: banks, insurance and brokerage industries, and real estate, applying the ΔCoVaR introduced by Adrian and Brunnermeier (2016) as the measure for systemic risk. Our findings show that the systemic risk level of China's financial system reacted to the main systemic events covered by our sample period, reaching a major peak during the stock market crash of 2015. We further show, through the Wilcoxon signed rank test, that the systemic risk level of the financial system and sectors significantly increased after the main systemic events. In order to provide a formal systemic risk ranking of the financial sectors, we apply the bootstrap Kolmogorov-Smirnov test as developed by Abadie (2002), finding that the banking sector contributed the most, followed by real estate and subsequently insurance and brokerage industries. Finally, comparing banks systemic risk's determinants between China and the US, the reduced level of competition among banks in China is found to increase banks’ systemic risk, contrary to what is found in the US

We analyze the relationship between asset price bubbles and systemic risk, using bank-level data covering almost 30 years. Banks’ systemic risk already rises during a bubble’s buildup and even more so during its bust. The increase in risk strongly differs across banks and by bubble. It depends on bank characteristics (especially bank size) and bubble characteristics and can become very large: in a median real estate bust, systemic risk increases by almost 70% of the median for banks with unfavorable characteristics. These results emphasize the importance of bank-level factors in the buildup of financial fragility during bubble episodes

Shadow insurance is a regulatory loophole exploited by certain insurance groups to increase risk exposure, potentially destabilising the financial system. In this paper, we evaluate the contribution of shadow insurance to systemic risk of the global financial sector using a sample of 215 international insurance entities covering the 2004–2017 period. We detect shadow insurance by examining every reinsurance agreement on the Schedule S filings. Using both ΔCoVaR and SRISK measures, we find that the practice of shadow insurance is a significant driver of global systemic risk

Against the background of the great financial crisis, this paper assesses the merits of bank-based versus market-based financing by exploring the relationship between financial structure and systemic risk. The findings indicate that bank-based financial structures are associated with higher systemic risk than market-based financial structures. In relatively bank-based financial structures, bank financing is found to increase systemic risk while market financing decreases systemic risk. By contrast, in relatively market-based financial structures, bank and market financing do not impact systemic risk. Together, the results signal that market-based financial structures are more resilient to systemic risk

Abundant references to threats to financial stability likely posed by systemic risk-taking in the euro area investment fund industry in an era of persistent low interest rates have not been accompanied by robust supportive empirical evidence. This is the first study that assesses the effects of euro area conventional and unconventional monetary policy shocks on coherent systemic risk measures applied to the investment fund industry. This research finds evidence of systemic risk-taking notably in the forms of contagion and increased vulnerability. It seems more material following conventional than unconventional monetary policy shocks. There is heterogeneity in the results, as the investment focus is important for assessing investment funds’ contribution to systemic risk. Fund types most affected by significant systemic risk-taking are bond funds, mixed funds and real estate funds. Some evidence of heightened vulnerability in equity funds is also present. Increase in leverage is part of the risk-taking mechanism. A key policy implication is that persistently accommodative monetary policy geared toward preserving price stability may face an intertemporal trade-off with financial stability, making it necessary to coordinate monetary and macroprudential policies

Theory suggests that government aid to banks may either reduce or increase systemic risk. We are the first to address this issue empirically, analyzing the Troubled Assets Relief Program (TARP). Analysis suggests that TARP significantly reduced contributions to systemic risk, particularly for larger and safer banks, and those in better local economies. This occurred primarily through a capital cushion channel that reduced market leverage by increasing the value of common equity. Results are robust to endogeneity and selection bias checks. Findings yield policy conclusions about whether to aid banks, the best targets for future assistance, and short-term versus long-term effects

In this paper we develop an in-depth analysis of the systemic risk and contagion determinants through the differential effects of excluding one bank on the banking system. The measure allows for splitting the contribution of individual banks into systemic risk as the sum of two components—the stand-alone bank risk and the contagion risk—and measuring the role of assets, riskiness, capitalization, and interconnectedness as determinants of each of the two components. Results show that the variables determining the stand-alone risk component are different from those determining the contagion risk component, so that a bank which is relatively safe with respect to stand-alone risk, can be an important contagion vehicle, or vice versa. Results also show that crisis severity significantly affects results, so that the severity of different crises results in different weights for the input variables and different contributions for the banks considered. These results add highly significant information for macroprudential regulation, not only from the cross-sectional point of view, but also with reference to the time dimension