EU banks after the crisis: sinners in the hands of angry markets
Journal Title: Journal of Banking and Financial Economics - Year 2018, Vol 1, Issue 9
Abstract
European Union banks were severely hit by the global financial crisis in 2008 and their stock prices and returns have generally not recovered since then, differently to what has been observed in other sectors (i.e., non-financial corporations) and jurisdictions (i.e., US). In this paper, we focus on three episodes of financial turmoil in EU financial markets occurring after the global financial crisis (August 2015, December 2015 and January 2016, and June 2016) and, through a series of linear regressions, with and without control variables, attempt to determine the common features of those banks which stock returns declined the most. Results of the regressions tend to suggest that size has been driving the decreases in stock returns in the three episodes. Regarding asset quality, the Texas ratio has been a decisive factor in the evolution of stock returns of EU banks in the second and third periods. Interestingly, profitability variables seem not to be statistically significant to explain the declines in stock returns, except in the third period, but only under some specifications. An evolution on the perception by financial market participants on EU banks, with a larger importance on asset quality in the latter periods, can also be observed. Lastly, on the basis of these results, further policy actions would be needed to clean-up the balance sheet of banks, as a necessary step towards full recovery after the global financial crisis.
Authors and Affiliations
Antonio Sánchez Serrano
Keywords
Related Articles
- EP ID EP349344
- DOI 10.7172/2353-6845.jbfe.2018.1.2
- Views 110
- Downloads 0
The Day After Tomorrow: Designing an Optimal Fiscal Strategy for Libya
Libya is highly dependent on exhaustible and volatile hydrocarbon resources, which constitute the bulk of government revenues. Although resource wealth provides the means to promote socio-economic development, procyclica...
Animal Spirits and Risk in Financial Markets
Keynes argues that a beauty contest in financial markets is a combination of rational higher-order beliefs and market psychology or animal spirits. We find that a stable equilibrium, where also market psychology is inclu...
Bank prudential and bank stability – how far do they go
This paper investigates how bank prudential behaviour affects bank stability, focusing only in the period after the global financial crisis. For this reason, we construct a new composite proxy as a measure for bank stabi...
Sovereign Debt Restructurings in Belize: Debt Sustainability and Financial Stability Aspects
This paper examines the causes, processes, and outcomes of the two Belize sovereign debt restructurings in 2006–07 and in 2012–13, which occurred outside an IMF-supported program. It finds that the motivation for the two...
Investigating Impact of US, Europe, Frontier and BRIC Stock Markets on Indian Financial Stress Index
The emerging markets are slowly opening up their respective fi nancial markets to foreign investments, thereby making the latter markets more sensitive to cross-market information transmissions. There are different trans...