BANKING SYSTEM: HOW BANKING WORKS, TYPES OF BANKING AND HOW TO CHOOSE THE BEST BANK FOR YOU
Keywords:
Bank, deposit, currency, Private Banking, financing, credit.Abstract
This paper analyzes the relationship between banks’ divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks’ systemic risk exposures using extreme value analysis. Systemic banking risk is measured as the tail beta, which equals the probability of a sharp decline in a bank’s stock price conditional on a crash in a banking index. Subsequently, the impact of (the correlation between) interest income and the components of non-interest income on this risk measure is assessed.
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