Essays in Financial Intermediation.

Bank Risk-Taking;Risk Reporting;Designated Market Maker;Value-at-Risk;Finance;Business and Economics;Business Administration

Zheng, KunchengRajan, Uday ;

University of Michigan

关键词: Bank Risk-Taking;    Risk Reporting;    Designated Market Maker;    Value-at-Risk;    Finance;    Business and Economics;    Business Administration;   

Others  :  https://deepblue.lib.umich.edu/bitstream/handle/2027.42/113504/kczheng_1.pdf?sequence=1&isAllowed=y

瑞士|英语

来源: The Illinois Digital Environment for Access to Learning and Scholarship

【 摘 要 】

This dissertation includes three essays about different aspects of financial intermediation. The first two essays look into bank risk-taking and risk reporting. The third essay studies the merits of market making contracts.The first essay examines how banks react differently to an increase in banking market competition conditional on their ex ante capital ratio. Low equity capital and credit market competition have been viewed as the main driving factors of bank risk taking. This essay studies the impact of the capital (leverage) ratio on a bank;;s risk-taking behavior when . Using deregulation in the 1980s as a shock to competition, I find that low-capital banks, compared with their high-capital peers, significantly reduce their risk when facing increased competition.While the first essay focuses on the risk-taking behavior of banks conditional on their capital ratio, the second one looks into the reporting of risk by financial institutions. In this essay, we show that banks significantly under-report the risk in their trading book when they have lower equity capital. The under-reporting is especially high during the critical periods of high systemic risk and for banks with larger trading operations. We exploit a discontinuity in the expected benefit of under-reporting present in Basel regulations to provide a causal link betweencapital-saving incentives and under-reporting. Our results provide evidence that banks;; self-reported risk measuresbecome least informative precisely when they may matter the most.Besides banks, market makers are another kind of financial intermediary, which provide liquidity in the secondary stock market. The third essay uses a simple model to examine the effects of secondary market liquidity on firm value and the decision to conduct an Initial Public Offering (IPO). Competitive liquidity provision can lead to market failure. Market failure arises when uncertainty regarding fundamental value and asymmetric information are both large. In these cases, firm value and social welfare are improved by a contract where the firm engages a Designated Market Maker (DMM) to enhance liquidity. Our model implies that such contracts represent a market solution to the market imperfection.