Otero González, Luis (dir.), Redondo López, José Antonio (dir.), Universidade de Santiago de Compostela. Facultade de Ciencias Económicas e Empresariais. Departamento de Economía Financieira e Contabilidade.
This thesis explores three important topics which contribute to the study of bank credit risk and the global financial stability. Chapter 2 “Financial Crisis: the case of Spain” focuses on the nature of the financial crises and their common characteristics. Also, it reviews the Spanish financial crisis and features that makes it distinctive. Chapter 3 “Determinants of bank excessive risk-taking behaviour” concentrates on the main reasons behind the financial crisis and empirically analyzes bank risk-taking factors for the three types of Spanish banks: commercial, saving and cooperative banks. Chapter 4 “Early Warning Model for European banks: evidence from the recent financial crisis” analyses empirically a sample of European listed banks and tests the effectiveness of Early Warning System (EWS), based on Expected Default Frequencies and accounting ratios, in forecasting the bank defaults during the recent financial crisis. The chapters are independent of each other in terms of theoretical grounding, dataset and methodology but complement each other by investigating the recent financial crisis from three different angles. Our study suggests that the Spanish financial crisis is not an exception to the general pattern of crises. The sequences of events evident preceding the crisis have many common features with what has already been witnessed in other financial crises. Furthermore, our findings indicate that there is a strong correlation between the bank’s ownership structure and its risk-taking behaviour. The results show positive association between risk and Spanish savings banks and negative with banks with dispersed ownership. We confirm the negative influence of wholesale funding, but not in favour of deposit funding. Instead, we find adverse effect of deposit funding on bank risk. We think this may be evidence of ‘excessive’ competition in deposit markets prior to the crisis when banks raise their deposit rates too high to attract more depositors by increasing their cost of funding and decreasing their interest margins. Also results show the negative influence of non-traditional income such as commissions and fee income. We find that equity has stable risk reducing character while impaired loans have a strong harmful effect of on banks’ risk level. Last chapter findings reveal that EDF metrics combined with four CAMEL covariates and variable capturing adverse selection are able to predict the defaults of European banks up to 8 quarters before an event. When comparing the final model with that only including the EDF indicator the significance improves considerably, suggesting that added variables provide additional information and power to the model.
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