Matthias Pelster

Financial penalties and banks’ systemic risk

Purpose The purpose of this paper is to analyze the impact of financial penalties on the stability of the banking sector. Design/methodology/approach A unique database of 671 financial penalties imposed on 68 international listed banks between 2007 and 2014 and a fixed-effects panel data approach were used. Findings The results show that financial penalties increase banks’ systemic risk exposure but do not significantly affect banks’ contribution to systemic risk. Additionally, the link between financial penalties and systemic risk exposure is weaker in regulatory and supervisory systems with more prompt corrective power among national authorities. By contrast, supervisory authorities’ stronger power to declare insolvency and a greater external monitoring culture exacerbate the positive effects of financial penalties on systemic risk exposure. Practical implications The punishment of misconduct should correct the social harm and prevent future misconduct while ensuring the banking system’s stability. Therefore, authorities should punish misconduct by implementing penalties against the financial institutions at a specific amount that offsets the damages of misconduct but does not threaten systemic stability. Penalties against institutions may be complemented by financial penalties against upper management to induce a more responsible culture in banks. Originality/value This paper is the first to study the effect of financial penalties on the stability of the financial system. The results contribute to the ongoing debate on the appropriateness of financial penalties and address the question of whether bank regulators reduce or contribute to banks’ systemic risk.

Bank stock performance and bank regulation around the globe

ABSTRACT We analyze the effect of bank capital, regulation, and supervision on the annual stock performance of global banks during the period of 1999–2012. We study a large comprehensive panel of international banks and find that higher Tier 1 capital decreases a banks stock performance over the whole sample period. However, during turbulent times stocks of more highly capitalized banks perform significantly better. Additionally, we find strong evidence that banks that are more likely to receive government bailout during financial distress realize smaller stock performance. In contrast, we find no convincing evidence that banks that generate higher non-interest income have a higher performance.

Key Aspects of a Sustainable Health Insurance System in Germany

BackgroundThe main goals of health-care systems are to improve the health of the population they serve, respond to people’s legitimate expectations, and offer fair financing. As a result, the health system in Germany is subject to continuous adaption as well as public and political discussions about its design.ObjectiveThis paper analyzes the key challenges for the German health-care system and the underlying factors driving these challenges. We aim to identify possible solutions to put the German health-care system in a better position to face these challenges.MethodsWe utilize a broad array of methods to answer these questions, including a review of the published and grey literature on health-care planning in Germany, semi-structured interviews with stakeholders in the system, and an online questionnaire.ResultsWe find that the most urgent (and manageable) aspects that merit attention are holistic hospital planning, initiatives to increase (administrative) innovation in the health-care system, incentives to increase prevention, and approaches to increase analytical quality assurance.ConclusionWe found that hospital planning, innovation, quality control, and prevention, are considered to be the topics most in need of attention in the German health system.

Investmentfonds der Social Community

The empirical evidence for the persistence of mutual fund performance is controversial. In the aftermath of the Global Financial Crisis, several Social Trading Platforms were set up. These platforms introduce a new type of investment strategies. Instead of depending on fund manager’s investment decisions, investors can rely on recommendations of a large social community and make use of the „wisdom of the crowds” for their investment decisions. This empirical research shows that mutual funds that rely on this new investment strategy were not able to outperform the market in the past.

Systemic Risk, Bank Capital, and Deposit Insurance Around the World

We analyze the effect of bank capital, regulation and deposit insurance on the global systemic risk of international banks during the period of 1999-2012. Using a comprehensive panel of large global banks, we identify factors that influence the build-up of systemic risk worldwide across a large set of heterogeneous regulatory and supervisory schemes. We find that higher Tier 1 capital decreases both the exposure and contribution of individual banks to global systemic risk. We also show that deposit insurance schemes that require banks and depositors to bear more financial risk are associated with a more pronounced vulnerability and contribution of individual banks to a crisis of the financial sector. Further results show that bank size and interconnectedness are positively related and competition is negatively related to global financial fragility. In contrast, we find no convincing evidence that a bank’s supervisory environment or non-interest income significantly influence a bank’s exposure or contribution to systemic risk.