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Bank business models, capital structure, lending behavior and risk

Alawadhi, Khuloud (2017) Bank business models, capital structure, lending behavior and risk. PhD thesis, Prifysgol Bangor University.

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Abstract

This thesis investigates the relationship between bank business models, capital structure, lending behaviour and risk. First, we investigated the impact of bank business models on stock crash risk. In a sample of 1373 listed banks in 34 OECD countries over the period 2000-2013, we found that the investment bank business model is associated with lower stock crash risk while the commercial and the universal business models are more likely to encounter higher stock crash risk. In addition, we found that commission and fees income is the least likely to be prone to stock crash risk. Moreover, the findings show that there is a negative relationship between the long-term funding structure and stock crash risk, while there is a positive relationship between the short-term funding structure and stock crash risk. Second, we investigated whether stock volatility has an impact on bank capital decisions. We found that banks react to increases in stock volatility by reducing leverage, specifically, by depending more on short-term funding and less on long-term funding. We also found that banks respond to increases in stock volatility by increasing paid-in share capital and increasing the usage of reserves. By analysing banks assets, we found that during volatile periods, banks tend to hold less of risky assets, particularly, by reducing lending, depending more on securities, and increasing the holding of liquid assets. Our findings also show that the reduction in portfolio risk is associated with drops in income. Third, we investigated whether stock volatility has an impact on banks’ lending decisions and whether this relationship is influenced by the financial crises. We found that banks react to stock volatility by reducing the credit supply of each of net loans, gross loans, retail loans, and commercial loans; while no significant effect is reported on mortgage loans. Moreover, the effect of both the global financial crisis (2008-2009) and the Eurozone crisis (2010-2011) are found to be associated with decreased loans, while prior the crises period (2000-2007) showed this particular relationship to be weaker. We found that bank size is an important factor determining bank lending, as large banks are found to be less affected by stock market uncertainty than small banks. We also found that stable sources of funding such as capital and customer deposits play an important role in stabilizing the lending behaviour of banks. Finally, we confirmed the significant role of stock volatility in predicting future banks’ lending decisions.

Item Type: Thesis (PhD)
Additional Information: No signed declaration
Subjects: Degree Thesis
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Degree Thesis
Date Deposited: 06 Feb 2018 09:24
Last Modified: 06 Feb 2018 09:24
URI: http://e.bangor.ac.uk/id/eprint/10856
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