John AIBINU will publicly defend his PhD Thesis, entitled “Essays on commonality in bank behaviour and systemic risk” on December 18, 2023 at 2.00 pm (Room Amphi TREILHARD, Campus Turgot)

Jury: David DICKSON (University of Birmingham, UK), Isabelle DISTINGUIN (University of Limoges, France), Laetitia LEPETIT (University of Limoges, France), Franck STROBEL (University of Birmingham, UK), and Wolf WAGNER (University of Rotterdam, Holland).

Abstract

This thesis explores the impact of commonality in bank behavior on systemic risk, encompassing three key chapters. The first chapter analyses the relationship between asset portfolio overlap and systemic risk in large U.S. BHCs, revealing a U-shaped association. Over 75% of banks in the sample exhibit levels above the threshold harmful to financial stability. Our results further emphasize the importance of maintaining low asset commonality for financial stability during normal and crisis periods, as well as for banks with shorter funding maturities. The second chapter delves into how the relationship between asset commonality and systemic risk may vary under varying degrees of macroprudential policies across 103 banks in 29 countries. The primary objective of macroprudential policy is to reduce bank’s exposure to systemic risk arising from excessive credit growth, correlated failures, and common exposures. However, the implementation of such policies may inadvertently contribute to an increase in bank common holdings as they attempt to engage in risk-shifting strategies. The findings indicate that asset commonality increases exposure to systemic risk under higher implementation of quantity and financial institution-targeted macroprudential policies. The third chapter extends the analysis to the commonality of bank’s environmental behavior of 91 systemically important banks from 2002 to 2021, uncovering another U-shaped relationship with systemic risk. When the degree of commonality in environmental behavior falls below a specific threshold, there is a decrease in systemic risk, as the study observed with increased commonality. In contrast, surpassing this threshold results in a higher degree of environmental commonality, which elevates systemic risk. Above all, the study emphasizes the importance of recognizing and managing commonality to enhance financial stability.