Bank Systematic Risk and Basel III Regulatory Announcements: International Evidence

Abstract

This paper examines the impact of five distinct Basel 3 announcements had on systematic risk levels of 122 internationally active banks in 37 countries over the sample period 2007-2013 using an extension of the Wagster (1996) market model. We extend the prior literature with methodology that captures the market reaction to banks’ systematic risk both from the relevant domestic country index and the World MSCI index as well as compared the responses of globally systematic important banks (G-SIBs) with other international banks. The G-SIBs in the sample had a higher level of systematic risk than their non-G-SIB counterparts throughout the sample period. Both groups showed a decrease in systematic risk in response to the Basel Committee on Banking Supervision 2009 consultative document and also its 2013 liquidity revisions, but more so for the G-SIBs. In contrast, no change to systematic risk is found for the 2010 official Basel III release. Systematic risk increased against the country indexes for the 2011 G-SIB consultative document, more so for G-SIBs and for the official document release later in 2011 the G-SIB banks risk change with the world index. Finally, the systematic risk of the G-SIB and non G SIB banks both reduced significantly for the Basel III liquidity revision in 2013.