Hedge Fund Systemic Risk Contribution, Capital Requirements and Performance

2010 ◽  
Author(s):  
Juha Joenväärä
Keyword(s):  
Systemic Risk ◽  
Hedge Fund ◽  
Capital Requirements ◽  
Risk Contribution ◽  
And Performance

Bank mergers: the cyclical behaviour of regulation, risk and returns

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohamad Hassan ◽  
Evangelos Giouvris
Keyword(s):  
Technical Efficiency ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Financial Institution ◽  
Capital Requirements ◽  
Policy Implications ◽  
Bank Mergers ◽  
Content Type ◽  
Risk Contribution ◽  
The Impact

Purpose The purpose of this paper is to examine the effects of bank mergers on systemic and systematic risks on the relative merits of product and market diversification strategies. It also observes determinants of M&A deals criteria, product and market diversification positioning, crisis threshold and other regulatory and market factors. Design/methodology/approach This research examines the impact and association between merger announcements and regulatory reforms at bank and system levels by investigating the impact of various bank consolidation strategies on firms’ risks. We estimate beta(s) as an index of financial institutions’ systematic risk. We then develop an index of the estimated equity value loss as the long-rum marginal expected shortfall (LRMES). LRMES contributes to compute systemic risk (SRISK) contribution of these firms, which is the capital that a firm is expected to need if we have another financial crisis. Findings Large acquiring banks decrease systemic risk contribution in cross-border M&As with a non-bank financial institution, and witness profitability (ROA) gains, supporting geographic diversification stability. Capital requirements, activity restrictions and bank concentration increase systemic risk contribution in national mergers. Bank mergers with investment FIs targets enhance productivity but impair technical efficiency, contrary to bank-real estate deals where technical efficiency change accompanied lower systemic risk contribution. Practical implications Financial institutions are recommended to avoid trapped capital and liquidity by efficiently using local balance sheet and strengthening them via implementing models that clearly set diversification and netting benefits to determine capital reserves and to drive capital efficiency through the clarity on product–activity–geography diversification and focus. This contributes to successful ringfencing, decreases compliance costs and maximises returns and minimises several risks including systemic risk. Social implications Policy implications: the adversative properties of bank mergers in respect of systemic risk require strict and innovative monitoring of bank mergers from the bidding level by both acquirers and targets and regulators and competition supervisory bodies. Moreover, emphasis on regulators/governments intervention and role, as it provides a stabilising factor of the markets and consecutively lower systemic risk even if the systematic idiosyncratic risk contribution was significant. However, such roles have to be well planned and scaled to avoid providing motives for banks to seek too-big-too-fail or too-big-to-discipline status. Originality/value This research contributes to the renewing regulatory debate on banks sustainable structures by examining the risk effect of bank diversification versus focus. The authors aim to address the multidimensional impacts and risks inherent to M&A deals, by examining the extent of the interconnectedness of M&A and its implications within and beyond the banking sector.

scholarly journals Systemic Risk and Insurance Regulation †

Risks ◽  
2018 ◽  
Vol 6 (3) ◽  
pp. 74 ◽  
Author(s):  
Fabiana Gómez ◽  
Jorge Ponce
Keyword(s):  
Systemic Risk ◽  
Formal Model ◽  
Public Support ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Insurance Companies ◽  
Prudential Regulation ◽  
High Exposure ◽  
Insurance Firms ◽  
Low Exposure

This paper provides a rationale for the macro-prudential regulation of insurance companies, where capital requirements increase in their contribution to systemic risk. In the absence of systemic risk, the formal model in this paper predicts that optimal regulation may be implemented by capital regulation (similar to that observed in practice, e.g., Solvency II ) and by actuarially fair technical reserve. However, these instruments are not sufficient when insurance companies are exposed to systemic risk: prudential regulation should also add a systemic component to capital requirements that is non-decreasing in the firm’s exposure to systemic risk. Implementing the optimal policy implies separating insurance firms into two categories according to their exposure to systemic risk: those with relatively low exposure should be eligible for bailouts, while those with high exposure should not benefit from public support if a systemic event occurs.

scholarly journals Systemic risk measurement: bucketing global systemically important banks

2021 ◽  
Author(s):  
Marina Brogi ◽  
Valentina Lagasio ◽  
Luca Riccetti
Keyword(s):  
Systemic Risk ◽  
Financial System ◽  
Capital Requirements ◽  
Insurance Premium ◽  
Risk Measurement ◽  
Marginal Contribution ◽  
General Consensus ◽  
Systemically Important Banks

AbstractThe general consensus on the need to enhance the resilience of the financial system has led to the imposition of higher capital requirements for certain institutions, supposedly based on their contribution to systemic risk. Global Systemically Important Banks (G-SIBs) are divided into buckets based on their required additional capital buffers ranging from 1% to 3.5%. We measure the marginal contribution to systemic risk of 26 G-SIBs using the Distressed Insurance Premium methodology proposed by Huang et al. (J Bank Financ 33:2036–2049, 2009) and examine ranking consistency with that using the SRISK of Acharya et al. (Am Econ Rev 102:59–64, 2012). We then compare the bucketing using the two academic approaches and supervisory buckets. Because it leads to capital surcharges, bucketing should be consistent, irrespective of methodology. Instead, discrepancies in the allocation between buckets emerge and this suggests the complementary use of other methodologies.

scholarly journals HEDGE FUNDS: RISK AND PERFORMANCE

2018 ◽  
Vol 06 (01) ◽  
pp. 1850003
Author(s):  
SANGHEON SHIN ◽  
JAN SMOLARSKI ◽  
GÖKÇE SOYDEMIR
Keyword(s):  
Risk Factors ◽  
Hedge Funds ◽  
Factor Model ◽  
Explanatory Power ◽  
Hedge Fund ◽  
Investment Strategy ◽  
Time Varying ◽  
Asset Class ◽  
And Performance ◽  
Fund Portfolio

This paper models hedge fund exposure to risk factors and examines time-varying performance of hedge funds. From existing models such as asset-based style (ABS)-factor model, standard asset class (SAC)-factor model, and four-factor model, we extract the best six factors for each hedge fund portfolio by investment strategy. Then, we find combinations of risk factors that explain most of the variance in performance of each hedge fund portfolio based on investment strategy. The results show instability of coefficients in the performance attribution regression. Incorporating a time-varying factor exposure feature would be the best way to measure hedge fund performance. Furthermore, the optimal models with fewer factors exhibit greater explanatory power than existing models. Using rolling regressions, our customized investment strategy model shows how hedge funds are sensitive to risk factors according to market conditions.

scholarly journals Governance under the Gun: Spillover Effects of Hedge Fund Activism*

2018 ◽  
Vol 23 (6) ◽  
pp. 1031-1068 ◽  
Author(s):  
Nickolay Gantchev ◽  
Oleg R Gredil ◽  
Chotibhak Jotikasthira
Keyword(s):  
Hedge Fund ◽  
Spillover Effects ◽  
Threat Perception ◽  
Capital Expenditures ◽  
Return On Assets ◽  
Positive Effects ◽  
Asset Turnover ◽  
Hedge Fund Activism ◽  
And Performance ◽  
Industry Conditions

Abstract Hedge fund activism is associated with improvements in the governance and performance of targeted firms. In this article, we show that these positive effects of activism reach beyond the targets, as nontargeted peers make similar improvements under the threat of activism. Peers with higher threat perception, as measured by director connections to past targets, are more likely to increase leverage and payout, decrease capital expenditures and cash, and improve return on assets and asset turnover. As a result, their valuations improve, and their probability of being targeted declines. Our results are not explained by time-varying industry conditions or competition effects whereby improved targets force their product market rivals to become more competitive.

scholarly journals Bank risk and performance in the MENA region: The importance of capital requirements

2016 ◽  
Vol 40 (3) ◽  
pp. 398-421 ◽  
Author(s):  
Mohammad Bitar ◽  
Wadad Saad ◽  
Mohammed Benlemlih
Keyword(s):  
Capital Requirements ◽  
Bank Risk ◽  
Mena Region ◽  
And Performance

Innovative Enterprise Solves the Agency Problem

2019 ◽  
pp. 156-191
Author(s):  
William Lazonick ◽  
Jang-Sup Shin
Keyword(s):  
Agency Theory ◽  
Hedge Fund ◽  
Innovation Theory ◽  
Long Term Effects ◽  
Business Corporation ◽  
Innovative Enterprise ◽  
And Performance ◽  
Short Termism ◽  
The U.S

This chapter uses innovation theory to provide both a general theoretical critique and a selective empirical critique of the use of agency theory to rationalize the looting of the U.S. business corporation as enhancing economic efficiency. It focuses on three empirical works, Bebchuk and Fried, Pay Without Performance (2004); Bebchuk, Brav, and Jiang, “The Long-Term Effects of Hedge-Fund Activism” (2015); and Fried and Wang, “Short-Termism and Capital Flows” (2017). The chapter contends that MSV ideology as promulgated by agency theorists has contributed to inferior corporate and economic performance. It then argues that, for analyzing the operation and performance of the economy, innovation theory should replace agency theory.

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