Which factors determine the systematic risk of European banks? The issue is very important for regulators and decision-makers in financial markets. This study follows the Beaver-Kettler-Scholes (1970)’s pioneering approach, which estimates true betas of not-financial firms by correcting the observed market betas through the fundamental financial/accounting ratios that better explain the systematic risk; by extending this approach to commercial banks, we empirically estimate the fundamental betas of a sample of more than 100 European commercial banks in 2006-2015 period. The emerging findings show that size, diversification, derivatives, and TEXAS ratio increase the systematic risk of banks and that the risk weighting of assets, based on Basel rules, does not correctly catch the bank risks, since it influences negatively their beta. This evidence weakens the dominant belief that growing up through M&As is the panacea for European banks.

Venanzi, D. (2020). Systematic risk in European Banks [10.2139/ssrn.3644863].

Systematic risk in European Banks

Venanzi D.
2020

Abstract

Which factors determine the systematic risk of European banks? The issue is very important for regulators and decision-makers in financial markets. This study follows the Beaver-Kettler-Scholes (1970)’s pioneering approach, which estimates true betas of not-financial firms by correcting the observed market betas through the fundamental financial/accounting ratios that better explain the systematic risk; by extending this approach to commercial banks, we empirically estimate the fundamental betas of a sample of more than 100 European commercial banks in 2006-2015 period. The emerging findings show that size, diversification, derivatives, and TEXAS ratio increase the systematic risk of banks and that the risk weighting of assets, based on Basel rules, does not correctly catch the bank risks, since it influences negatively their beta. This evidence weakens the dominant belief that growing up through M&As is the panacea for European banks.
Venanzi, D. (2020). Systematic risk in European Banks [10.2139/ssrn.3644863].
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11590/401700
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