The impact of the identification of GSIBs on their business model

Most research papers dealing with systemic footprint in the banking system either investigate the definition and the measure of systemic risk, or try to identify systemic banks and to quantify the systemic risk buffers. To the best of our knowledge, this paper is among the first to provide empirical evidence on how the recent international regulation designed for globally systemic important banks (GSIBs) drove changes on
these institutions' activity. Our data consists of cross-section observations for 97 large international banks from 22 countries from 2005 to 2016 (12 years). We use a "difference-in-difference" econometric approach to quantify the impact of the FSB designation on GSIBs' activity, taking into account both structural differences between GSIBs and non-GSIBs and structural evolutions of the banking system over time. We find that, if everything else is equal, the FSB designation of GSIBs has triggered a slowdown in the
expansion of their balance sheet, which resulted in an additional improvement of their leverage ratio. In turn, a sizeable downward pressure is noticed on their profitability. Our results also indicate that the average risk-weight of GSIBs' assets started to increase following their designation. Overall, most significant effects elicited in this paper actually illustrate a mean-reverting process, tending to close structural gaps between GSIBs and non-GSIBs.

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The impact of the identification of GSIBs on their business model
  • Published on 01/11/2018
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Updated on: 06/07/2018 15:08