Abstract
Abstract This paper examines the Leverage Ratio and Total Capital Ratio of global versus non-global banks in both the pre- and post-crisis periods. A panel data set of 165 global and non-global financial institutions from 38 countries is used for the period 1999-2015 and a random effects model is employed to examine whether global banks perform better or not compared to their non-global counterparts. This study comes up with two important findings. First, global banks do not exhibit heterogeneous behaviour with respect to both ratios neither in the pre- and especially nor in the post-crisis period. Second, the Leverage Ratio is crisis-insensitive, but the Total Capital Ratio is not. Our findings encourage further research on the topic of the contribution of global banks to the financial crisis propagation (at least as far as leverage is concerned).
Highlights
Global banks are important for their investment and lending activities worldwide, and suspect for contributing to the transmission of financial crises across banking systems and economies, due to their interconnectedness and the degree of their exposure to cross-border funding activities (Kalemli-Ozcan, Papaioannou & Perri, 2013; Liu & Pogach, 2017)
This paper explores (a) whether global banks differ from their non-global counterparts in terms of Leverage and Total Capital ratios, in both the pre- and postfinancial crisis periods, and (b) whether a possibly inferior performance of global banks may have contributed to the 2007-2008 crisis
Considering third hypothesis we accept Ho and we reject Ha as our results show that global banks do not perform better than their non-global counterparts in terms of these ratios during the whole data period as global bank estimate is statistically insignificant in both cases; note that GLOBAL estimate becomes insignificant when a two-way interaction is introduced
Summary
Global banks are important for their investment and lending activities worldwide, and suspect for contributing to the transmission of financial crises across banking systems and economies, due to their interconnectedness and the degree of their exposure to cross-border funding activities (Kalemli-Ozcan, Papaioannou & Perri, 2013; Liu & Pogach, 2017). This paper explores (a) whether global banks differ from their non-global counterparts in terms of Leverage and Total Capital ratios, in both the pre- and postfinancial crisis periods, and (b) whether a possibly inferior performance of global banks may have contributed to the 2007-2008 crisis. Several CAMELS factors (Non-performing loans, Operational Expenses to Operational Income, ROE, and Loan-to-Deposit ratios) and bank size are employed as explanatory variables. These factors are used for supervisory purposes as well as in comparative banking sectors studies (Beck, Demirgüc-Kunt & Merrouche, 2013). Global banks do not present superior or inferior performance relative to non-global banks during and after the recent financial crisis.
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