Template-Type: ReDIF-Paper 1.0
Author-Name: John Caparusso
Author-X-Name-First: John
Author-X-Name-Last: Caparusso
Author-Name: Leonardo Ulf Lewrick
Author-X-Name-First: Ulf
Author-X-Name-Last: Lewrick
Author-Name: Nikola Tarashev
Author-X-Name-First: Nikola
Author-X-Name-Last: Tarashev
Title: Profitability, valuation and resilience of global banks - a tight link
Abstract: We derive a tight link between the profitability, valuation and resilience of global systemically important banks (G-SIBs). We measure profitability using return on equity (ROE), valuation with the price-to-book ratio and resilience through the capital headroom above regulatory requirements ("management buffer"). We find that price-to-book ratios increase in analysts' ROE forecasts and in banks' management buffers. We also document that low-valued G-SIBs maintain management buffers by reducing risk-weighted assets and cater to investors by paying out their entire profits. However, the resilience of low-valued G-SIBs could prove precarious as they frequently incur substantial losses that trigger significant negative stock-market reactions.
Creation-Date: 2023-11
File-URL: https://www.bis.org/publ/work1144.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1144.htm
File-Format: text/html
Number: 1144
Keywords: financial stability, price-to-book ratio, banking regulation
Classification-JEL: G21, G28, C25
Handle: RePEc:bis:biswps:1144