Davide Salvatore Mare

Nonstationary Z-Score Measures

In this work we develop advanced techniques for measuring bank insolvency risk. More specifically, we contribute to the existing body of research on the Z-Score. We develop bias reduction strategies for state-of-the-art Z-Score measures in the literature. We introduce novel estimators whose aim is to effectively capture nonstationary returns; for these estimators, as well as for existing ones in the literature, we discuss analytical confidence regions. We exploit moment-based error measures to assess the effectiveness of these estimators. We carry out an extensive empirical study that contrasts state-of-the-art estimators to our novel ones on over ten thousand banks. Finally, we contrast results obtained by using Z-Score estimators against business news on the banking sector obtained from Factiva. Our work has important implications for researchers and practitioners. First, accounting for nonstationarity in returns yields a more accurate quantification of the degree of solvency. Second, our measure allows researchers to factor in the degree of uncertainty in the estimation due to the availability of data.

State-Aid, Stability and Competition in European Banking

What is the relationship between bank fragility and competition during a period of market turmoil? Does market power in European banking involve extra-gains after discounting for the cost of government intervention? We answer these questions in the context of Eurozone banking over 2005-2012 and show that greater market power increases bank stability implying aggregate extra-gains of 57% of EU12 gross domestic product for the banking sector after discounting for the costs associated with government intervention. The negative influence of competition on bank stability is non-monotonic and reverses for lower degrees of competition. Capital injections, guarantees and asset relief measures elicit greater bank soundness.

Formal and informal household savings: how does trust in financial institutions influence the choice of saving instruments?

We investigate whether trust in different financial institutions influences the choice of saving instruments. Is trust a significant determinant of household saving behavior? How does trust in different financial institutions affect the composition of household savings? Using unique survey data for ten emerging market economies in Central, Eastern and Southeastern Europe, we show that trust in the financial system increases the probability of holding formal savings and the diversification among formal saving instruments. Trust in the financial system and in foreign banks are significantly associated with holding contractual and capital market saving instruments. Trust in the safety of deposit has the largest positive effect on bank savings. Trust in domestic banks increases the likelihood of holding formal savings the most and trust in foreign banks decreases holdings of informal savings the most.

Revisiting the Competition-Stability Nexus in the Euro Area in the Light of the Global Financial Crisis

The euro area, the countries that have adopted the euro, is converging some more towards a banking union. Starting from November 2014, the European Central Bank has become the single supervisor of euro zone banks calling for a more integrated supervision. Despite the on-going process, there are few studies that focus on the relationship between bank fragility and competition specifically for this economic block. Furthermore, it is not yet clear the extent of the relationship during a period of market turmoil and whether competition policies should account for the costs associated to systemic instability. We assess the relationship between market power and financial stability for the Eurozone banks over the period 2005-2012. We find that market power increases bank stability and it implies a net pecuniary cost after discounting for the cost of government intervention. We show that bank’s business model is significantly positively related to individual bank stability and that high market power is associated with lower stability during the recent market turmoil (2008-2012). Moreover, we advocate that capital injections and asset relief measures are effective and increase individual bank soundness.