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Credit Risk Management and US Bank-Holding Companies: An Empirical Investigation.
- Source :
- Journal of Risk & Financial Management; Feb2024, Vol. 17 Issue 2, p56, 11p
- Publication Year :
- 2024
-
Abstract
- This paper empirically evaluates the impact of ownership structure on the cost of credit in US banks. It does so by comparing their grouped option-adjusted credit spreads on the outstanding debt issues. As the overall risk of the creditors is reflected in the yield spread of the firms' outstanding bonds, separately classifying bank-holding companies and stand-alone banks and controlling risk ratings, maturities, and issue sizes enables us to compare the yield spreads tied to ownership structure. After computing the option-adjusted yield spreads of outstanding operating and holding company bonds, we used these values in a master regression equation to test the statistical and economic significance of the binary variable separating the option-adjusted spreads of the two sets. Our work finds that when the S&P ranks and maturities are controlled, US bank-holding companies finances with higher cost of credit compared with stand-alone banks, although holding companies add a layer of liability protection due to the legal separation between the assets and the owners. This suggests that certain characteristics of US bank-holding companies, such as higher leverage and higher systematic risk levels, make them riskier compared with traditional stand-alone banks, offsetting the benefits of forming a holding company. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 19118066
- Volume :
- 17
- Issue :
- 2
- Database :
- Complementary Index
- Journal :
- Journal of Risk & Financial Management
- Publication Type :
- Academic Journal
- Accession number :
- 175668918
- Full Text :
- https://doi.org/10.3390/jrfm17020056