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New Trends in Banking and Finance

by Çağatay Başarir (Volume editor) Burak Darici (Volume editor) Murat Ertuğrul (Volume editor)
©2019 Edited Collection 248 Pages

Summary

Finance is the root of the economic systems. Positive or negative developments in the financial sector directly affect the economy of the countries. One of the fundamental components of the financial sector is the banking sector. Financial markets, which are one of the basic elements of national economies and the banking sector, form the basis of all world economies directly or indirectly. For this purpose, current affairs in both financial markets and banking sector are analysed by academicians and practitioners in different point of views.

Table Of Contents

  • Cover
  • Title Page
  • Copyright Page
  • Preface and Acknowledgements
  • About the editors
  • About the book
  • Citability of the eBook
  • Contents
  • List of Contributors
  • 1 Systemic Risk, Causes and Precautions
  • 1 Introduction
  • 2 Literature Summary
  • 3 Systemically Important Financial Institutions (SIFIs)
  • 3.1 Global Systemically Important Banks (G-SIBs)
  • 3.2 Domestic Systemically Important Banks (D-SIBs)
  • 4 Reasons for Systemic Risks
  • 4.1 Too Big to Fail
  • 4.2 Domino Effect and Interconnectedness
  • 4.3 Contagion Effect
  • 5 Precautions to Reduce the Systemic Risks
  • Conclusion and Recommendations
  • References
  • 2 Implications for a Macro Prudential Policy Framework: Systemic Risk and Shadow Banking Operations in Insurance Sector
  • 1 Introduction
  • 2 Systemic Risk in the Insurance Sector
  • 3 Shadow Banking Operations in the Insurance Sector
  • 4 Implications for Regulatory Framework
  • Conclusion
  • Notes
  • References
  • 3 A Historical Analysis on the Recycling of Petrodollars
  • 1 Introduction
  • 2 Macroeconomic Effects of Petrodollars
  • 3 Oil Prices and Revenues
  • 4 Channels for the Recycling of Petrodollars
  • Conclusion
  • References
  • 4 The Reaction of the Bank of England to the US Dollar Exchange Rate
  • 1 Introduction
  • 2 Background
  • 3 Data
  • 4 Empirical Evidence
  • Conclusion
  • References
  • 5 Analyzing the Relationship between Cryptocurrencies and Exchange Rates
  • 1 Introduction
  • 2 Literature Review
  • 3 Empirical Analysis
  • 3.1 Data Set and Variables
  • 3.2 Empirical Results
  • Conclusion
  • References
  • 6 Global Trends in Liquidity Creation: The Role of the Off-Balance Sheet
  • 1 Introduction
  • 2 Literature Review
  • 3 Data
  • 4 Results
  • Conclusion and Policy Implications
  • References
  • 7 Green Banking in Turkey
  • 1 Introduction
  • 2 Green Economy and Sustainable Finance
  • 3 Risks of Climate Change to the Banking Sector
  • 4 Green Banking Activities in Turkey
  • Conclusions
  • References
  • 8 The Relationship Marketing Approach to Creating Competitive Advantage in the Banking Sector
  • 1 Introduction
  • 2 The Relationship Marketing Concept and Its Differences from Transactional Marketing
  • 3 Goals of Relationship Marketing
  • 4 Bonds and Bonding Strategies in Relationship Marketing
  • 4.1 Core Relationship Marketing Strategies
  • 4.2 Supportive Relationship Marketing Strategy
  • 5 Studies on Relationship Marketing in the Banking Sector
  • Conclusion
  • References
  • 9 Macroeconomic Factors Affecting Non-Performing Loans in the Turkish Banking Sector
  • 1 Introduction
  • 2 The Development of Non-Performing Loans in the Turkish Banking System
  • 2 Macroeconomic Determinants of NPLs
  • 3 Data, the Model and Empirical Evidence
  • Conclusion
  • References
  • 10 Analyzing the Relationship between the Valuation Method Used within the Scope of TFRS-9 Financial Instruments Profitability and Capital Structure of the Turkish Banking Sector
  • 1 Introduction
  • 2 Literature
  • 3 The Relationship between the Fair Value Method and Profitability, Capital Adequacy, and Liquidity Applications in the Turkish Banking Sector
  • 3.1 Research Methodology
  • 3.2 Research Hypotheses and Variables
  • 4 Empirical Findings
  • Conclusion
  • References
  • 11 The Market Structure of the Turkish Banking Sector That Changed with the Crisis in 2001: Merger and Acquisition Effect
  • 1 Introduction
  • 2 The Market Structure and Competition Analysis of the Turkish Banking Sector
  • 2.1 Model and Methodology
  • The Lerner Index and Adjusted Lerner Index
  • 2.2 Data Set
  • 2.3 Analysis Results: Structural Approaches
  • 2.4 Analysis Results: Non-Structural Approaches
  • General Evaluation
  • References
  • 12 The Relationship between the Real Sector Confidence Index and Financial Indicators
  • 1 Introduction
  • 2 Literature Summary
  • 3 Data, Method, and Findings
  • General Evaluation and Conclusion
  • References
  • 13 The Effects of Financial Development on the Real Sector in Turkish Economy
  • 1 Introduction
  • 2 The Theoretical and Empirical Framework of the Financial Sector—Real Sector Relationship and the Developments in the Turkish Economy
  • 3 Data and the Econometric Method
  • 3.1 Model and Data set
  • 3.2 Unit Root Analysis
  • 3.3 Cointegration Analysis
  • 3.3.1 Long-Term Estimation Results
  • 3.3.2 Short-Term Estimation Results
  • Conclusion and General Evaluation
  • References
  • 14 Examining the Relationship between Market Information and Buy-Sell Decisions by PIN Values
  • 1 Introduction
  • 2 The Probability of Informed Trading
  • 3 Literature Review
  • 4 Data
  • 5 Findings
  • 6 Discussion of Results
  • Conclusion
  • Acknowledgments
  • References
  • 15 Generalized Autoregressive Score (Gas) Model: An Applied Analysis on the BIST 100 Index
  • 1 Introduction
  • 2 Literature Review
  • 3 The GAS Model
  • 4 Data and Empirical Findings
  • Conclusion
  • References
  • 16 The Effect of Basel Accords on Economic Value Added and Market Value Added
  • 1 Introduction
  • 2 Economic Value Added
  • 3 Market Value Added
  • 4 Background
  • 5 Solutions
  • Conclusion and Future Research Directions
  • References
  • List of Figures
  • List of Tables

List of Contributors

Özlem Akın

Asst. Prof., Ozyegin University, ozlem.akın@ozyegin.edu.tr

Onur Akkaya

Dr., Kilis 7 Aralık University, onurakkaya@kilis.edu.tr

Özlem Ayvaz Kızılgöl

Asst. Prof., Bandırma Onyedi Eylül University, okizilgol@bandirma.edu.tr

Haşim Bağcı

Asst. Prof., Aksaray University, hasimbagci@aksaray.edu.tr

Çağatay Başarır

Asst. Prof., Bandırma Onyedi Eylül University, cbasarir@bandirma.edu.tr

Tuba Derya Başkan

Asst. Prof., Kırıkkale University, tBaşkan@kku.edu.tr

İbrahim Murat Bicil

Asst. Prof., Balıkesir University, muratbicil@balikesir.edu.tr

Ömer Faruk Biçen

Asst. Prof., Balikesir University, ofbicen@balikesir.edu.tr

Sezer Bozkus Kahyaoğlu

Assoc. Prof., İzmir Bakırçay University, sezer.bozkus@bakircay.edu.tr

Çiğdem Kurt Cihangir

Asst. Prof., Hitit University, kurt_cigdem@yahoo.com

Zehra Civan

Dr., Vakıfbank, İstanbul, Turkey, civanzh@gmail.com

Ertuğrul Deliktaş

Prof., Ege University, ertugrul.deliktas@ege.edu.tr

Pınar Fulya Gebeşoğlu

Ph.D., The Ministry of Treasury and Finance, fulya.ozorhan@hazine.gov.tr

Gülçin Gürel Günal

Res. Asst., Dr., Ege University, gulcin.gurel@ege.edu.tr

Burhan Günay

Asst. Prof. Yıldırım Beyazıt University, bgunay@ybu.edu.tr

Özlem İnce

Ph.D. Candidate, Pamukkale University, ozlemince@hotmail.com

S. Mehmet Özsoy

Asst. Prof., Ozyegin University, mehmet.ozsoy@ozyegin.edu.tr.

Seçil Öztürk

Asst. Prof., Çanakkale Onsekiz Mart University, secilozturk@comu.edu.tr

Mesut Türkay

Ministry of Treasury and Finance, Ph.D. Republic of Turkey, Ankara, Turkey

mesut.türkay@hazine.gov.tr

←9 | 10→

Kumru Türköz

Res., Asst., Balikesir University, kumru.turkoz@balikesir.edu.tr

Umut Uyar

Asst. Prof., Pamukkale University, uuyar@pau.edu.tr

Nimet Varlık

Asst. Prof., Kırıkkale University, nvarlik@kku.edu.tr

Özer Yılmaz

Asst. Prof., Bandirma Onyedi Eylül University, oyilmaz@bandirma.edu.tr

Zehra Civan

1 Systemic Risk, Causes and Precautions1

Abstract: There are several ongoing studies on systemic risks and related preventive measures that have been one of the most popular topics after the 2008 financial crisis. This chapter researches the concept of systemic risks and gives definitions of systemically important financial institutions, and global and domestic systemically important banks, as well. This study includes the reasons for systemic risks and the necessary precautions to be taken to reduce them. It differs from other studies with respect to the overall general concept of systemic risks.

Keywords: Systemic Risk, Financial Crisis, Precautions, financial Institutions

1 Introduction

Financial institutions subject to systemic risks and economic damages caused by them, as well as the reasons for systemic risks, have become the most often discussed topics in the academic and financial environment due to the last economic crisis that started in 2007 and was distributed to all financial markets in 2008.

Systemic risk which has become one of the most discussed issues in the literature since the 2008 financial crisis has no single definition. Instead, there are many alternative definitions highlighting the systemic risk in the literature. Some of these are given below.

BIS (Bank for International Settlements) defines systemic risk as the risk emerging when the failure of a financial institution to meet its obligations creates a chain reaction and affects other institutions negatively, leading to financial difficulties in a broad sense. This definition emphasizes the domino effect of systemic risks (BIS, 1994: 177).

Rochet and Tirole (1996: 733) define it as the propagation of a bank’s economic distress to other economic agents linked to that bank through financial transactions.

G-10 defines systemic risk as follows in the report on Consolidation in the Financial Sector published in 2001:

←11 | 12→

Systemic financial risk is the risk that an event will trigger a loss of economic value or confidence in, and attendant increases in uncertainly about, a substantial portion of the financial system that is serious enough to quite probably have significant adverse effects on the real economy. Systemic risk situations can occur suddenly and unexpectedly, or the possibility of systemic risk occurs when there are no appropriate political arrangements. Negative economic impacts resulting from systemic risks are generally seen as the disruption of the payment system and credit flows and the disappearance of asset values. (G-10, 2001: 126)

Kaufman and Scott (2003: 371) define systematic risk as the risk or probability of breakdowns in an entire system, as opposed to breakdowns in individual parts or components, and is evidenced by comovements (correlation) among most or all the parts.

ECB (European Central Bank) defines systemic risk as the risk in which financial instability becomes so widespread that it impairs the functioning of a financial system to the point where economic growth and welfare suffer materially (ECB, 2009: 135).

Erdem Başçı, who was the Central Bank Governor of Turkey from April 2011 to April 2016, highlighted the contagious effect of systemic risk in the opening speech he made at the G-20 conference titled “Financial Systemic Risk” held in Istanbul on September 27, 2012. He emphasized the interdependence among financial institutions while explaining the concept of systemic risk.

As stated by Smaga (2014: 2), systemic risk is much more than a single risk affecting financial institutions. Risks such as credit risks, liquidity risks, and operational risks, etc., directly affect the relevant institutions while systemic risk occurs indirectly.

Some of the studies in the literature on systemic risk are about definitions of systemic risk while others are aimed at measuring the systemic risks. Studies aimed at preventing systemic risks also show what can be done to reduce these risks. This part first gives a summary of the literature including studies on measurement of systemic risks and then mentions systemically important financial institutions (SIFIs), reasons for systemic risks, and precautions that can be taken to prevent such risks.

2 Literature Summary

The literature including theoretical and empirical studies on systemic risks is expanding each passing day. This section has been limited to studies on systemic risks. There is no single or standard method used to measure systemic risks revealed by the literature review. This risk is measured with different approaches ←12 | 13→in the relevant literature. It is not clearly known which one reflects this risk correctly.

The leading studies in the literature on measurement of systemic risks are briefly mentioned below:

Lehar (2005: 2582) defined systemic risks using the model developed by Merton (1974) and the default probabilities of financial institutions in the study that was based on asset returns and liabilities. In this way, the possibility of financial institutions’ failure to make payments was calculated.

Huang et al. (2009: 2039) suggested the distress insurance premium technique as a systemic risks measurement method that tries to predict the asset-return correlation and is based on calculation of insurance premiums of banks using banks’ default probabilities for possible financial crisis situations.

Segoviano and Goodhart (2009: 16–17) have created a banking stability index that is aimed at measuring interconnectedness of banks and their impacts on each other during an economic crisis using credit default swap data and tries to predict the systemic risks.

Adrian and Brunnermeier (2008: 1–2) suggested the CoVaR method to measure systemic risks. They defined CoVaR as the value-at-risk (VaR) of the financial system conditional on a financial institution being under distress. In this method, the contribution of a financial institution to the systemic risks of the system is shown with ∆CoVaR.

Acharya et al. (2010: 2–3) suggested the MES (Marginal Expected Shortfall) method. Using this method, they concluded that a bank with higher MES value made a bigger contribution to the systemic risks. Afterwards, Brownless and Engle (2012: 2–3) suggested the Systemic Risk (SRISK) method, which is related to MES. This method aims to predict the capital amount that will be needed by the financial institution in the next economic crisis.

Details

Pages
248
Year
2019
ISBN (ePUB)
9783631780589
ISBN (MOBI)
9783631780596
ISBN (PDF)
9783631780572
ISBN (Softcover)
9783631779866
DOI
10.3726/b15343
Language
English
Publication date
2019 (March)
Keywords
Financial Markets Confidence Index Liquidity Creation Banking Shadow Banking
Published
Berlin, Bern, Bruxelles, New York, Oxford, Warszawa, Wien. 2019. 248 pp., 37 b/w ill., 52 b/w tab.

Biographical notes

Çağatay Başarir (Volume editor) Burak Darici (Volume editor) Murat Ertuğrul (Volume editor)

Çağatay Başarir works as an academician in Bandirma Onyedi Eylul University, International Trade and Logistics Department. His academic publications include studies on financial markets, stock exchange markets, commodity markets and precious metals in the field of time series analyses, multi criteria decision analysis and performance measurement. He teaches financial management, financial analysis, financial markets, international finance and portfolio management lessons in both graduate and undergraduate degree courses. Burak Darici works as an academician in Economics at Bandirma Onyedi Eylul University, Turkey. He has published in several areas. He focuses especially on monetary policy, labour market, financial markets and international economics. Hasan Murat Ertuğrul works as Senior Treasury Expert at Ministry of Treasury and Finance. His academic publications include applied macroeconomic modelling issues. His academic expertise areas cover applied modelling, forecasting and macroeconomics.

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Title: New Trends in Banking and Finance