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Size, Risk, and Governance in European Banking$
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Jens Hagendorff, Kevin Keasey, and Francesco Vallascas

Print publication date: 2013

Print ISBN-13: 9780199694891

Published to Oxford Scholarship Online: January 2014

DOI: 10.1093/acprof:oso/9780199694891.001.0001

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Systemic Risk Potential and Opacity in European Banks

Systemic Risk Potential and Opacity in European Banks

Chapter:
(p.190) (p.191) 8 Systemic Risk Potential and Opacity in European Banks
Source:
Size, Risk, and Governance in European Banking
Author(s):

Jens Hagendorff

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199694891.003.0008

This chapter focuses on the relationship between systemic risk potential (measured via synchronicity in stock price movements) and opacity in European banks. Regulatory initiatives that enhance the information environment may lower bank opacity and increase the firm-specific information incorporated in stock prices. The chapter examines if these initiatives lower or increase the risk interdependencies between the largest European banking firms. Our results show that less opaque banks have lower comovements and exhibit a lower probability of stock price crashes. Two major regulatory implications can be drawn from our analysis. First, our results demonstrate that removing bank opacity should contribute to the stability of the financial sector. Second, together with the evidence of a strong positive impact of size on bank exposure to systematic and systemic shocks and on the probability of stock price crashes, these results add support to forms of the re-regulation of the banking industry based on limits on bank size

Keywords:   Opacity, Bank Regulation, Systemic Risk

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