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Begin New Search Topic Risk Author Ricardo Correa

1. Liquidity Risk and U.S. Bank Lending at Home and Abroad

Author:
Ricardo Correa, Linda Goldberg, and Tara Rice
Publication Date:
05-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
While the balance sheet structure of U.S. banks influences how they respond to liquidity risks, the mechanisms for the effects on and consequences for lending vary widely across banks. We demonstrate fundamental differences across banks without foreign affiliates versus those with foreign affiliates. Among the nonglobal banks (those without a foreign affiliate), cross-sectional differences in response to liquidity risk depend on the banks' shares of core deposit funding. By contrast, differences across global banks (those with foreign affiliates) are associated with ex ante liquidity management strategies as reflected in internal borrowing across the global organization. This intra-firm borrowing by banks serves as a shock absorber and affects lending patterns to domestic and foreign customers. The use of official-sector emergency liquidity facilities by global and nonglobal banks in response to market liquidity risks tends to reduce the importance of ex ante differences in balance sheets as drivers of cross-sectional differences in lending.
Topic:
Risk, Lending, Banking, and Liquidity
Political Geography:
North America and United States of America

2. Revenge of the Steamroller: ABCP as a Window on Risk Choices

Author:
Carlos Ó. Arteta, Mark Carey, Ricardo Correa, and Jason Kotter
Publication Date:
04-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We empirically examine financial institutions' motivations to take systematic bad-tail risk in the form of sponsorship of credit-arbitrage asset-backed commercial paper vehicles. A run on debt issued by such vehicles played a key role in causing and propagating the liquidity crisis that began in the summer of 2007. We find evidence consistent with important roles for both owner-manager agency problems and government-induced distortions, especially government control or ownership of banks.
Topic:
Economics, Financial Crisis, Risk, Banking, and Commercialization
Political Geography:
Global Focus

3. The Systemic Risk of European Banks

Author:
Lamont Black, Ricardo Correa, Xu Huang, and Hao Zhou
Publication Date:
07-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We propose a hypothetical distress insurance premium (DIP) as a measure of the European banking systemic risk, which integrates the characteristics of bank size, default probability, and interconnectedness. Based on this measure, the systemic risk of European banks reached its height in late 2011 around E 500 billion. We find that the sovereign default spread is the factor driving this heightened risk in the banking sector during the European debt crisis. The methodology can also be used to identify the individual contributions of over 50 major European banks to the systemic risk measure. This approach captures the large contribution of a number of systemically important European banks, but Italian and Spanish banks as a group have notably increased their systemic importance. We also find that bank-specific fundamentals predict the one-year-ahead systemic risk contribution of our sample of banks in an economically meaningful way.
Topic:
Debt, Regional Cooperation, European Union, Regulation, Risk, Fiscal Policy, and Banking
Political Geography:
Europe

4. International Evidence on Government Support and Risk Taking in the Banking Sector

Author:
Luis Brandao-Marques, Ricardo Correa, and Horacio Sapriza
Publication Date:
08-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Government support to banks through the provision of explicit or implicit guarantees affects the willingness of banks to take on risk by reducing market discipline or by increasing charter value. We use an international sample of rated banks and find that government support is associated with more risk taking by banks, especially prior and during the 2008-2009 financial crisis. We also find that restricting banks range of activities ameliorates the link between government support and bank risk taking. We conclude that strengthening market discipline by reducing bank complexity is needed to address this moral hazard problem.
Topic:
Governance, Regulation, Risk, and Banking
Political Geography:
North America and United States of America

5. Sovereign Credit Risk, Banks' Government Support, and Bank Stock Returns Around the World

Author:
Ricardo Correa, Kuan-Hui Lee, Horacio Sapriza, and Gustavo Suarez
Publication Date:
12-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We explore the joint effect of expected government support to banks and changes in sovereign credit ratings on bank stock returns using data for banks in 37 countries between 1995 and 2011. We find that sovereign credit rating downgrades have a large negative effect on bank stock returns for those banks that are expected to receive stronger support from their governments. This result is stronger for banks in advanced economies where governments are better-positioned to provide that support. Our results suggest that stock market investors perceive sovereigns and domestic banks as markedly interconnected, partly through government guarantees.
Topic:
Sovereignty, Governance, Risk, Credit, Bonds, and Stock Markets
Political Geography:
Global Focus