Forward-Looking Tail Risk Exposures at U.S. Bank Holding CompaniesReport as inadecuate

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Journal of Financial Services Research

, Volume 42, Issue 1–2, pp 35–54

First Online: 07 March 2012Received: 18 January 2011Revised: 03 February 2012Accepted: 10 February 2012


This paper develops a simple method for quantifying banks’ exposures to large negative shocks in a forward-looking manner. The method is based on estimating banks’ share prices sensitivities to market put options and does not require the actual observation of tail risk events. We find that estimated excess tail risk exposures for U.S. Bank Holding Companies are negatively correlated with their share price beta, suggesting that banks which appear safer in normal periods are actually more crisis prone than their beta would suggest. We also study the determinants of banks’ tail risk exposures and find that their key drivers are uninsured deposits and non-traditional activities that leave assets on banks’ balance sheets.

KeywordsTail risk Forward-looking Banks Systemic crisis JEL ClassificationG21 G28  Download fulltext PDF

Author: Martin Knaup - Wolf Wagner


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