Advanced

Local Bank Risk and the Regional Economic Environment: A Study of Cooperative Banks and Savings Banks in Germany

Nommels, Carsten Tete LU (2017) NEKP01 20162
Department of Economics
Abstract
This essay investigates the impact of a bank’s local economic environment that on its overall bank risk. Balance sheet data of Germany’s regionally-active savings banks (Sparkassen) and credit cooperatives (Kreditgenossenschaften) is matched with data from regional statistics to construct a dataset spanning the time period from 2000 until 2013. Bank risk is measured by time-varying Z-scores, an inverse measure of default risk. First, cross-sectional results are computed whilst controlling for both macroeconomic effects and time-varying bank characteristics. Second, bank-fixed effects are additionally taken into account. The results are not entirely indicative of an effect of the regional economic environment on bank risk, but do not allow... (More)
This essay investigates the impact of a bank’s local economic environment that on its overall bank risk. Balance sheet data of Germany’s regionally-active savings banks (Sparkassen) and credit cooperatives (Kreditgenossenschaften) is matched with data from regional statistics to construct a dataset spanning the time period from 2000 until 2013. Bank risk is measured by time-varying Z-scores, an inverse measure of default risk. First, cross-sectional results are computed whilst controlling for both macroeconomic effects and time-varying bank characteristics. Second, bank-fixed effects are additionally taken into account. The results are not entirely indicative of an effect of the regional economic environment on bank risk, but do not allow to rule out a relationship either. From a policy perspective, these findings add to the ongoing discussion on the regulatory treatment of small banks. While potentially more risky, local banks in economically disadvantaged, cash-strapped regions act as important providers of funding. Consequently, policy makers face a trade-off regarding the extent of regulation that is seen as disproportionally costly and as a threat to their business by small banks. (Less)
Please use this url to cite or link to this publication:
author
Nommels, Carsten Tete LU
supervisor
organization
course
NEKP01 20162
year
type
H2 - Master's Degree (Two Years)
subject
keywords
bank risk, economic environment, local banks, cooperative banks, savings banks
language
English
id
8900939
date added to LUP
2017-02-10 14:14:55
date last changed
2017-02-10 14:14:55
@misc{8900939,
  abstract     = {This essay investigates the impact of a bank’s local economic environment that on its overall bank risk. Balance sheet data of Germany’s regionally-active savings banks (Sparkassen) and credit cooperatives (Kreditgenossenschaften) is matched with data from regional statistics to construct a dataset spanning the time period from 2000 until 2013. Bank risk is measured by time-varying Z-scores, an inverse measure of default risk. First, cross-sectional results are computed whilst controlling for both macroeconomic effects and time-varying bank characteristics. Second, bank-fixed effects are additionally taken into account. The results are not entirely indicative of an effect of the regional economic environment on bank risk, but do not allow to rule out a relationship either. From a policy perspective, these findings add to the ongoing discussion on the regulatory treatment of small banks. While potentially more risky, local banks in economically disadvantaged, cash-strapped regions act as important providers of funding. Consequently, policy makers face a trade-off regarding the extent of regulation that is seen as disproportionally costly and as a threat to their business by small banks.},
  author       = {Nommels, Carsten Tete},
  keyword      = {bank risk,economic environment,local banks,cooperative banks,savings banks},
  language     = {eng},
  note         = {Student Paper},
  title        = {Local Bank Risk and the Regional Economic Environment: A Study of Cooperative Banks and Savings Banks in Germany},
  year         = {2017},
}