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Essays on the measurement of leverage and risk of banking institutions

The crux of this thesis is the development of a new methodology to measure leverage, risk and capital adequacy. The key theme of this thesis is the role of leverage in financial crises and financial stability, especially those that involve the banking sector. Furthermore, we argue that the source of...

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Main Author: Yong, Vincent Gan Beng
Format: Thesis
Language:English
Published: 2015
Subjects:
Financial institutions-Management
Banks and banking
Online Access:http://psasir.upm.edu.my/id/eprint/114175/1/114175.pdf
http://psasir.upm.edu.my/id/eprint/114175/
http://ethesis.upm.edu.my/id/eprint/18102
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spelling my.upm.eprints.1141752025-01-24T09:01:12Z http://psasir.upm.edu.my/id/eprint/114175/ Essays on the measurement of leverage and risk of banking institutions Yong, Vincent Gan Beng The crux of this thesis is the development of a new methodology to measure leverage, risk and capital adequacy. The key theme of this thesis is the role of leverage in financial crises and financial stability, especially those that involve the banking sector. Furthermore, we argue that the source of systemic risk lies with the endogenous risk of the banking balance sheet. We discuss the challenges in managing and measuring endogenous and systemic risk. Considering the strong evidence that book values of leverage are key state variables, we suggest new methods to manage and measure systemic risk. We then proceed to propose a novel new methodology for risk measurement that is robust and simple to apply at both the firm and systemic levels. It is further shown how the new risk measure can be applied to measure risk and capital adequacy at the bank level. We propose a new risk measure that combines the capital adequacy and leverage ratio into a single dynamic and consistent risk index that is simple to apply, comparable across all firms and multiple time periods and is risk sensitive. The index is aptly named the Capital Leverage Index or CapLev. It is also further shown how we can apply the methodology in constructing a new systemic risk measure, the Systemic Marginal Leverage Index or SysLev. Finally, we apply autoregressive models and Markov switching to study the effectiveness of the new measure and derive conclusions on the role of commercial banks in the 2008-2009 Global Financial Crisis. We find that SysLev outperforms STLFSI. We also find that aggregate balance sheet changes of the commercial banking sector can exert significant short term effects on the real economy. The predicted relationship is much stronger than the relationship between STLFSI and the real economy. 2015-07 Thesis NonPeerReviewed text en http://psasir.upm.edu.my/id/eprint/114175/1/114175.pdf Yong, Vincent Gan Beng (2015) Essays on the measurement of leverage and risk of banking institutions. Doctoral thesis, Universiti Putra Malaysia. http://ethesis.upm.edu.my/id/eprint/18102 Financial institutions-Management Banks and banking
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
language English
topic Financial institutions-Management
Banks and banking
spellingShingle Financial institutions-Management
Banks and banking
Yong, Vincent Gan Beng
Essays on the measurement of leverage and risk of banking institutions
description The crux of this thesis is the development of a new methodology to measure leverage, risk and capital adequacy. The key theme of this thesis is the role of leverage in financial crises and financial stability, especially those that involve the banking sector. Furthermore, we argue that the source of systemic risk lies with the endogenous risk of the banking balance sheet. We discuss the challenges in managing and measuring endogenous and systemic risk. Considering the strong evidence that book values of leverage are key state variables, we suggest new methods to manage and measure systemic risk. We then proceed to propose a novel new methodology for risk measurement that is robust and simple to apply at both the firm and systemic levels. It is further shown how the new risk measure can be applied to measure risk and capital adequacy at the bank level. We propose a new risk measure that combines the capital adequacy and leverage ratio into a single dynamic and consistent risk index that is simple to apply, comparable across all firms and multiple time periods and is risk sensitive. The index is aptly named the Capital Leverage Index or CapLev. It is also further shown how we can apply the methodology in constructing a new systemic risk measure, the Systemic Marginal Leverage Index or SysLev. Finally, we apply autoregressive models and Markov switching to study the effectiveness of the new measure and derive conclusions on the role of commercial banks in the 2008-2009 Global Financial Crisis. We find that SysLev outperforms STLFSI. We also find that aggregate balance sheet changes of the commercial banking sector can exert significant short term effects on the real economy. The predicted relationship is much stronger than the relationship between STLFSI and the real economy.
format Thesis
author Yong, Vincent Gan Beng
author_facet Yong, Vincent Gan Beng
author_sort Yong, Vincent Gan Beng
title Essays on the measurement of leverage and risk of banking institutions
title_short Essays on the measurement of leverage and risk of banking institutions
title_full Essays on the measurement of leverage and risk of banking institutions
title_fullStr Essays on the measurement of leverage and risk of banking institutions
title_full_unstemmed Essays on the measurement of leverage and risk of banking institutions
title_sort essays on the measurement of leverage and risk of banking institutions
publishDate 2015
url http://psasir.upm.edu.my/id/eprint/114175/1/114175.pdf
http://psasir.upm.edu.my/id/eprint/114175/
http://ethesis.upm.edu.my/id/eprint/18102
_version_ 1823093092141498368
score 13.235796

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