Segunda sesión, de observación antes de la ejecución del test

This study further examines the systemic significance of groups of banks. Several groups of banks are identified, including all G-SIBs, all non G-SIBs, 8 U.S. banks that are identified as G- SIBs (i.e. BAC, BK, CITI, GS, JPM, MS, STT, and WFC), 8 largest European banks (i.e. HSBC, BNP, DBK, ACA, BARC, SAN, GLE, and BPCE), 8 Asian banks (i.e. ABC, BOC, BoCom, CCB, ICBC, MHFG, MUFG, and SMFG), and 4 rescued U.S. banks (i.e. CFC, NCC, WB, and WAMU). Mean values of group z-scores, minus one group z-scores, and the percentage change (%Change) between the (whole sample) aggregate z-score and minus one group z-scores are reported in Panel (a) of Table 22. The whole sample covers period 2000-2015, which is further divided into sub-samples, i.e. pre-GFC period, GFC period, and post-GFC period, as described above.

70

It is owing to the low levels of non-interest income, and high levels of loan loss provision and non-interest expense. Data are from Income Statements in the FactSet database.

71 _{Dexia was bailed out three times by the French, Belgian and Luxemburg governments during the GFC and}

123 Table 22 – Summary statistics of z-scores for minus one group of banks

This table reports mean values of group z-scores, minus one group z-scores, and the percentage change between the (whole sample) aggregate z-score and minus one group z-scores. In Panel (a), banks are grouped in different ways, including all G-SIBs, all non G-SIBs, 8 U.S. banks that are identified as G-SIBs (i.e. BAC, BK, CITI, GS, JPM, MS, STT, and WFC), 8 largest European banks (i.e. HSBC, BNP, DBK, ACA, BARC, SAN, GLE, and BPCE), 8 Asian banks (i.e. ABC, BOC, BoCom, CCB, ICBC, MHFG, MUFG, and SMFG), and 4 rescued U.S. banks (i.e. CFC, NCC, WB, and WAMU). The percentage change is the proxy for the systemic significance of each group. Panel (b) provides further analyses on systemic significance of the 4 largest U.S. banks and European banks, which intends to remove the size effect on the analyses.

Groups of banks Period Group z Minus one z %Change Pre-GFC Period GFC Period Post-GFC Period

Panel (a) Minus one group of z-scores

All-G-SIBs 2000-2015 47.6 62.2 21.70% 64.47% 13.01% -40.44% All non G-SIBs 2000-2015 49.2 47.6 -6.83% -12.62% -4.24% -2.48% 8 largest U.S. banks 2000-2015 41.4 53.6 4.80% -6.70% 26.81% 10.85% 8 largest European banks 2000-2015 48.0 44.8 -12.31% -8.91% 1.44% -12.37% 8 Asian banks 2000-2015 48.9 53.3 4.37% 26.39% -21.30% -9.74% 4 rescued U.S. banks 2000-2008 29.1 41.0 -6.03% -8.58% 10.35% ---

Panel (b) Largest U.S. and European banks

4 largest US banks 2000-2015 35.6 52.9 3.51% -6.39% 26.63% 7.42% 4 largest European banks 2000-2015 50.6 48.8 -4.49% -4.58% 2.33% -8.09%

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The (whole sample) aggregate z-score has the value of 51.1, as discussed in Table 21. Firstly, as shown in Table 22, minus G-SIBs z-score has a value of 62.2, while minus non G-SIBs z- score equals 47.6. Dropping G-SIBs leads to a much greater difference between the (whole sample) aggregate z-score and minus G-SIBs z-score, meaning that G-SIBs as a whole have a greater contribution to systemic risk. G-SIBs as a whole are also very risky system-wide, represented by a positive value of the percentage change (21.70%). This phenomenon is more apparent during the pre-GFC period (especially during 2000-2003), represented by a large positive value of the percentage change (64.47%).

Secondly, this study compares banks’ systemic significance among different regions. Dropping the 8 largest European banks (HSBC, BNP, DBK, ACA, BARC, SAN, GLE, and BPCE) as a whole leads to a 12.31% (in absolute value) change in z-score, while dropping the 8 U.S. G- SIBs (BAC, BK, CITI, GS, JPM, MS, STT, and WFC) or the 8 Asian banks (ABC, BOC, BoCom, CCB, ICBC, MHFG, MUFG, and SMFG) lead to smaller changes, with 4.80% and 4.37% changes, respectively. It is straightforward to interpret that the European banks have greater systemic significance than the U.S. or Asian banks, although more detailed analyse are needed. On one hand, the large European banks do have greater systemic risk contribution than the Asian banks. This is also supported by the 2016 list of G-SIBs compiled by the FSB. The large European banks are generally allocated to higher levels of buckets with higher capital buffer requirements. More specifically, BNP Paribas, Deutsche Bank and HSBC are in bucket 3, with 2.0% capital buffer requirement, Barclays is in bucket 2, with 1.5% capital buffer requirement, and Groupe BPCE, Credit Agricole, Santander, and Societe Generale are in bucket 1, with 1.0% capital buffer requirement. All the Asian G-SIBs are allocated to either buckets 1 or 2, with 1.0% or 1.5% capital buffer requirements, respectively.

On the other hand, the greater systemic significance of the European banks, compared with the U.S. banks, is mostly owing to the impact of bank size. Only 4 of the 8 U.S. G-SIBs, namely JP Morgan, Bank of America, Wells Fargo, and Citigroup are particularly large, with total assets exceeding US$1,000 billion at the end of 2015. The total bank assets of the 8 European banks are much greater than those of the 8 U.S. banks. The average size (proxied by total assets) of the 8 European banks is US$1,748 billion, while the size is only US$1,294 billion for the 8 U.S. G-SIBs. This further supports the positive impact of bank size on

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systemic significance. To remove the size effect from the results, this study further compares the systemic significance by dropping the 4 largest U.S. banks (JPM, BAC, WFC, and CITI) or the 4 largest European banks (HSBC, BNP, DBK, and ACA) as a group. In the way, the two groups of banks are similar in average size, with US$2,004 billion for the 4 largest European banks and US$2,014 billion for the 4 largest U.S. banks. The results are reported in Panel (b) of Table 22. The European banks appear to be more systemically significant than the U.S. banks, after controlling for the size effect. The 4 largest U.S. banks have greater systemic risk contribution during the GFC period, while the European banks are becoming more systemically important during the post-GFC period, which is consistent with the impact of the European Sovereign Debt Crisis.

Finally, as to the 4 rescued U.S. banks, the 4 banks are risky individually, indicated by the low value of their group z-score, with a value of 29.1. Dropping the 4 banks as a whole leads to a 6.03% decrease in z-score, meaning that they have a significant (but not huge) impact on systemic risk. During the pre-GFC period, removing the 4 rescued banks as a whole leads to a negative 8.58% change in z-score, while it leads to a positive 10.35% change during the GFC period. This means that the 4 rescued U.S. banks were highly risky system-wide during the GFC. The failures of these 4 banks should be expected to contribute to the distress of the whole banking system during the crisis, although they would not necessarily cause the whole systemic crisis. It also gave opportunities to large banks to acquire their business72. This is consistent with the consequence of their failures – Countrywide Financial Corporation acquired by Bank of America, National City Corporation acquired by PNC Financial Services, Wachovia acquired by Wells Fargo, and Washington Mutual acquired by JP Morgan Chase.

To sum up, the LOO z-score measure applied at a group level is useful to compare the systemic significance among different groups of banks. G-SIBs have much greater systemic significance compared with non G-SIBs. The large U.S. or European banks have greater systemic risk contribution than the large Asian banks. The U.S. banks have greater systemic

72 _{It can also be explained by Acharya (2009). Banks tend to survive together and thus fail together by choosing}

asset portfolios with greater correlation of returns if other banks cannot benefit from the acquisitions of the failed banks.

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significance during the GFC period, while the European banks are becoming more systemically important during the post-GFC period. The 4 rescued U.S. banks are risky both individually and system-wide, especially during the GFC period.