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Banks’ Non-Interest Income and Systemic Risk

Banks’ Non-Interest Income and Systemic Risk. Brunnermeier , Dong, Palia Discussant Loriana Pelizzon Ca ’ Foscari University Venice and MIT Sloan. Objectives. Banks are “special” for many different reasons… Recently they have increasingly earned profits from non-interest income

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Banks’ Non-Interest Income and Systemic Risk

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  1. Banks’ Non-Interest Income and Systemic Risk Brunnermeier, Dong, Palia Discussant LorianaPelizzon Ca’ Foscari University Venice and MIT Sloan

  2. Objectives • Banks are “special” for many different reasons… • Recently they have increasingly earned profits from non-interest income • In these activities they have started to compete with other capital market intermediaries: Hedge funds, mutual funds, investment banks and private equities (whom do not have deposit insurance). • This has build up a sort of “Shadow banking system” or a “Shadow hedge funds system” (with deposit Insurance...) • => Resulting in higher systemic risk 30/09/2011

  3. Methodology • Capture Systemic risk with CoVar or SES • Financial statement data from Compustat and from FR Y-9C • OLS panel regression with Quarterly FE and a series of control variables and: • Non-interest income ratio • OR • Trading income ratio • Investment banking ratio • Other non interest income 30/09/2011

  4. Results Slide 4 Systemic risk is positively related with: non-interest income Bank size Trading income(-), investment banking, venture income 1990 and 2007 30/09/2011 04/05/2011

  5. Comments • Very interesting topic! • Very interesting paper! 30/09/2011

  6. Comments • It is surprising that CoVaR (and therefore one of your systemic risk measure) is not related to leverage • Do you control for heteroschedasticity when you perform the quantile regression to determine CoVaR? • Why N. of obervations change so much among the different regressions? 30/09/2011

  7. Comments • All the different systemic risk measures have some limits. Why not using out of sample analysis, i.e.: • losses during the different crisis periods as dependent variable or • the results of stress test analysis 30/09/2011

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