Are German Banks Riskier Than European Competitors Finance Essay

The term “ hazard ” has been derived from Greek word “ rizikon ” which means root. Generally, hazard is undertaken by investors to cognize the estimated value of one or more than one future events. Demsetz, R & A ; Strahan, P ( 1997 ) . The estimated value can be positive or negative. Different research workers gave different significance to hazard. Some of them are as follows: In context of Risk Management normally the term “ hazard ” is used in topographic point of an exposure. But this definition is non right because hazard is the chance of go oning of an event whether it is good or bad. On the other manus, as per Cornelius Keating: Hazard is merely otiose compartment in the concern which arises due to unsure results. In 1953, the hazard construct was used in the planning of delta plants to protect Netherlands from inundation, with the aid of mathematician David new wave Dantzig. In today ‘s epoch, the construct of hazard is used in the countries of: atomic power, aerospace and the chemical industry. The different types of hazard are: currency hazard, rising prices hazard, chief hazard, state hazard, liquidness hazard, market hazard, and unsystematic hazard.

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Hazard ASSOCIATED WITH BANKS

The new approaching fiscal systems are less flexible than the banking systems of developed states Moreno ( 2009 ) . Broadly, there are two factors which are responsible for altering the grade of flexibleness in banking sector: ( 1 ) the alteration in behavior of macroeconomic hazards ; ( 2 ) debut of new signifiers of hazard to Bankss ; and ( 3 ) the capacity of the direction of the house to pull off hazards or to better it. In today ‘s epoch, there are assorted new signifiers of hazard which are associated with Bankss. Some of them are: recognition hazard, market hazard and liquidness hazard. The flexibleness in banking sector is by and large dependent upon their exposure and ability to pull off them.

Recognition hazard is associated with the recognition operations which are considered to be the beginning of income by Bankss. Such sort of hazard has inauspicious effects on the parts of the Bankss particularly on the corporate recognition growing Demsetz, R & A ; Strahan, P ( 1997 ) . Further, the typical sweetening in recognition hazard leads to the change of hazard exposures. Market hazard is besides known as volatility. It consequences into the fluctuations in a peculiar plus monetary value or in an full category of assets. It explains the ground behind the alteration in the value of investings. It can be measured with the aid of value at hazard. Liquidity hazard is the hazard that arises because of the trouble which enterpriser faces while selling an plus rapidly. While some of the bank assets are extremely liquid due to which they have low liquidness hazard while others are illiquid due to which they have high liquidness hazard.

German BANKS

German Banking is similar to other states ‘ banking systems. But, it involves few differences. Now a twenty-four hours ‘s assorted German Bankss are runing at international degree and to provide the demands of clients at international degree, employees are good trained in assorted countries like English and German speech production Chirinkoa, R & A ; Elstonc, J ( 2004 ) . German banking is besides affecting them in place banking.Thus, it help clients to look into their balance or to reassign their financess from place telephone or computing machine. For this intent, pin Numberss are allotted to their clients. Further, there are alternate ways of doing payment in Germany such as: One of the first methods to do payment is: Transportation involves transportation of money from one history to another Hayden, E: Porath, D & A ; Westernhagen, N ( 2007 ) . Second, standing order is used where there are on a regular basis repeating payments such as rent, insurance premiums and telecasting fees. And last manner of payment is Direct debit.It is most suited in the instances where the size of repeating payments varies such as the telephone, gas and electric measures.

European BANKS

European Bankss are committed towards the rules of honestness and clarity. Apart from above, it publishes the current developments on the regular and widespread footing. In 1992, president of the European Bank for Reconstruction and Development saw the demand of the concern of the visual aspect of vibrant. Therefore, it become one of the major ground for the success of European Bankss.

RESEARCH METHODOLOGY

For measuring whether the German Bankss are riskier than the European rivals or non, their assets, loan, sedimentations, gross, llp, net income, Basque Homeland and Freedom, nim, return on assets and loan plus form are observed from January, 2004 to December, 2008.The information has been provided by Prof. Yener Altunbas ( Research Methods Module organiser – Bangor University ) . The consequences thereto are neatly presented with the aid of tabular arraies. And numerical figures are round off up to three denary topographic points. Early theoretical distribution on T distribution was done by a adult male W.S.Gosset in the early 1900 ‘s. In the given state of affairs, the sample size is less than30 and standard divergence is non known. Therefore, we will use two tail t-tests. Furthermore, in utilizing the t-distribution, we assume that the population is normal or about normal. The T tabular array is more compact and shows countries and T values for merely a few per centums. It besides measures the opportunity that the population parametric quantity we are gauging will non within our assurance interval such as in this instance: assurance degree is 95 % , therefore.05 opportunity of mistake is at that place.

Analysis

Assetss

European BANKS

State

assets

A

Belgique

29484.94

A

Italy

456.38

A

France

7775.80

A

Nederlands

13484.04

A

Greece

12541.71

A

Portuguese republic

1629.77

German BANKS

A

A

A

Danmark

1810.25

A

Oesterreichs

1931.38

Consequence:

t-Test: Two-Sample Assuming Unequal Variances

A

Variable 1

Variable 2

P ( T & lt ; =t ) two-tail

0.0909

t Critical two-tail

2.5705

A

Null Hypotheses: There is no important difference between the assets of German Bankss and European Bankss.

Alternate Hypothesiss: There is a important difference between the assets of German Bankss and European Bankss.

Since, the value of P is greater than 5 % which indicates that there is no important difference between the assets of German Bankss and European Bankss. Therefore, we accept void hypothesis.

Loans

European BANKS

State

loans

A

Belgique

12368.97

A

Italy

285.33

A

France

4098.29

A

Nederlands

2471.60

A

Greece

6780.03

A

Portuguese republic

915.24

German BANKS

A

A

A

Danmark

709.97

A

Oesterreichs

973.48

Consequence:

t-Test: Two-Sample Assuming Unequal Variances

A

Variable 1

Variable 2

P ( T & lt ; =t ) two-tail

0.105708

t Critical two-tail

2.570582

A

Null Hypotheses: There is no important difference between the loan form of German Bankss and European Bankss.

Alternate Hypothesiss: There is a important difference between the loan form of German Bankss and European Bankss.

Since, the value of P is greater than 5 % which indicates that there is no important difference between the loan form of German Bankss and European Bankss. Therefore, we accept void hypothesis.

Deposits

European BANKS

State

sedimentations

A

Belgique

25002.07

A

Italy

272.00

A

France

5466.33

A

Nederlands

1393.11

A

Greece

10637.50

A

Portuguese republic

1305.37

German BANKS

A

A

A

Danmark

1614.84

A

Oesterreichs

1442.21

Consequence:

t-Test: Two-Sample Assuming Unequal Variances

A

Variable 1

Variable 2

P ( T & lt ; =t ) two-tail

0.192678

t Critical two-tail

2.570582

A

Null Hypotheses: There is no important difference between the sedimentations of German Bankss and European Bankss.

Alternate Hypothesiss: There is a important difference between the sedimentations of German Bankss and European Bankss.

Since, the value of P is greater than 5 % which indicates that there is no important difference between the sedimentations of German Bankss and European Bankss. Therefore, we accept void hypothesis.

Gross

European BANKS

State

Gross

A

Belgique

1429.83

A

Italy

34.38

A

France

591.47

A

Nederlands

116.76

A

Greece

1040.21

A

Portuguese republic

126.92

German BANKS

A

A

A

Danmark

118.71

A

Oesterreichs

105.05

Consequence:

t-Test: Two-Sample Assuming Unequal Variances

A

Variable 1

Variable 2

P ( T & lt ; =t ) two-tail

0.116401

t Critical two-tail

2.570582

A

Null Hypotheses: There is no important difference between the gross of German Bankss and European Bankss.

Alternate Hypothesiss: There is a important difference between the gross of German Bankss and European Bankss.

Since, the value of P is greater than 5 % which indicates that there is no important difference between the gross of German Bankss and European Bankss. Therefore, we accept void hypothesis.

Loan Loss Provisions mil USD

European BANKS

State

llp

A

Belgique

28.83

A

Italy

1.71

A

France

32.74

A

Nederlands

4.94

A

Greece

60.53

A

Portuguese republic

8.42

German BANKS

A

A

A

Danmark

4.47

A

Oesterreichs

10.76

Consequence:

t-Test: Two-Sample Assuming Unequal Variances

A

Variable 1

Variable 2

P ( T & lt ; =t ) two-tail

0.167264

t Critical two-tail

2.446912

A

Null Hypotheses: There is no important difference between the Loan Loss Provisions mil USD of German Bankss and European Bankss.

Alternate Hypothesiss: There is a important difference between the Loan Loss Provisions mil USD of German Bankss and European Bankss.

Since, the value of P is greater than 5 % which indicates that there is no important difference between the Loan Loss Provisions mil USD of German Bankss and European Bankss. Therefore, we accept void hypothesis.

Net income

European BANKS

State

Net income

A

Belgique

156.24

A

Italy

3.56

A

France

28.84

A

Nederlands

1598.85

A

Greece

117.47

A

Portuguese republic

9.31

German BANKS

A

A

A

Danmark

5.04

A

Oesterreichs

4.62

Consequence:

t-Test: Two-Sample Assuming Unequal Variances

A

Variable 1

Variable 2

P ( T & lt ; =t ) two-tail

0.276301

t Critical two-tail

2.570582

A

Null Hypotheses: There is no important difference between the net income of German Bankss and European Bankss.

Alternate Hypothesiss: There is a important difference between the net income of German Bankss and European Bankss.

Since, the value of P is greater than 5 % which indicates that there is no important difference between the net income of German Bankss and European Bankss. Therefore, we accept void hypothesis.

Equity / Total Assets ( % )

European BANKS

State

Basque Homeland and Freedom

A

Belgique

10.70

A

Italy

19.16

A

France

6.83

A

Nederlands

28.33

A

Greece

5.69

A

Portuguese republic

22.27

German BANKS

A

A

A

Danmark

5.78

A

Oesterreichs

6.80

Consequence:

t-Test: Two-Sample Assuming Unequal Variances

A

Variable 1

Variable 2

P ( T & lt ; =t ) two-tail

0.058424

t Critical two-tail

2.570582

A

Null Hypotheses: There is no important difference between the Equity / Total Assets ( % ) of German Bankss and European Bankss.

Alternate Hypothesiss: There is a important difference between the Equity / Total Assets ( % ) of German Bankss and European Bankss.

Since, the value of P is greater than 5 % which indicates that there is no important difference between the Equity / Total Assets ( % ) of German Bankss and European Bankss. Therefore, we accept void hypothesis.

Net Interest Margin ( % )

European BANKS

State

Net Interest Margin

A

Belgique

2.35

A

Italy

3.76

A

France

3.60

A

Nederlands

1.66

A

Greece

15.99

A

Portuguese republic

4.79

German BANKS

A

A

A

Danmark

2.22

A

Oesterreichs

1.91

Consequence:

t-Test: Two-Sample Assuming Unequal Variances

A

Variable 1

Variable 2

P ( T & lt ; =t ) two-tail

0.190953

t Critical two-tail

2.570582

A

Null Hypotheses: There is no important difference between the Net involvement border of German Bankss and European Bankss.

Alternate Hypothesiss: There is a important difference between the Net involvement border of German Bankss and European Bankss.

Since, the value of P is greater than 5 % which indicates that there is no important difference between the Net involvement border of German Bankss and European Bankss. Therefore, we accept void hypothesis.

Tax return on Asset ( ROA )

European BANKS

State

Tax return ON ASSETS

A

Belgique

0.89

A

Italy

0.55

A

France

0.89

A

Nederlands

4.80

A

Greece

0.99

A

Portuguese republic

0.99

German BANKS

A

A

A

Danmark

0.36

A

Oesterreichs

0.33

Consequence:

t-Test: Two-Sample Assuming Unequal Variances

A

Variable 1

Variable 2

P ( T & lt ; =t ) two-tail

0.135297

t Critical two-tail

2.570582

A

Null Hypotheses: There is no important difference between the return on plus of German Bankss and European Bankss.

Alternate Hypothesiss: There is a important difference between the return on plus of German Bankss and European Bankss.

Since, the value of P is greater than 5 % which indicates that there is no important difference between the return on plus of German Bankss and European Bankss. Therefore, we accept void hypothesis.

Loan Asset

European BANKS

State

Loan plus

A

Belgique

39.07

A

Italy

53.63

A

France

58.39

A

Nederlands

37.74

A

Greece

36.75

A

Portuguese republic

50.35

German BANKS

A

A

A

Danmark

50.53

A

Oesterreichs

52.02

Consequence:

t-Test: Two-Sample Assuming Unequal Variances

A

Variable 1

Variable 2

P ( T & lt ; =t ) two-tail

0.230278

t Critical two-tail

2.570582

A

Null Hypotheses: There is no important difference between the loan plus of German Bankss and European Bankss.

Alternate Hypothesiss: There is a important difference between the loan plus of German Bankss and European Bankss.

Since, the value of P is greater than 5 % which indicates that there is no important difference between the loan plus of German Bankss and European Bankss. Therefore, we accept void hypothesis.

Recommendation

German bank should work towards enlargement by opening up new subdivisions and should research those countries where banking installation is minimum and employ more gifted and skilled fiscal advisers. Further, they should besides seek to sell the merchandises /plan which the consumer requires and non the program where the adviser benefit is higher. They should besides present new programs which will assist them to pull the young person of the state. Last, they should besides seek to make new value added services and trade name image so that it can sit on them to sell its merchandise to get the better of its rivals.

Decision

From above we conclude that there is no important difference between the assets, loans, net income, gross, net involvement border, return on assets, loan plus, llp, Basque Homeland and Freedom and sedimentations of German Bankss and European Bankss. As both the banking system have similar form in regard of all the assets and liabilities. In other words, both the banking system are exposed to similar type of hazard. Therefore, we conclude that the German Bankss are non riskier than their European rivals.

Mentions

Bank deposits – the concealed hazard associated with authorities guaranteedA sedimentations ( 2008 ) is available from & lt ; hypertext transfer protocol: //thebankwatch.com/2009/07/04/bank-deposits-the-hidden-risk-associated-with-government-guaranteed-deposits/ & gt ; [ accessed on 13th January 2010 ]

Chirinkoa, R & A ; Elstonc, J ; ( 2004 ) : “ Finance, control and profitableness: the influence of German Bankss “ Journal of Economic Behavior & A ; Organization: Vol. 59, No. 1.Pp.69-88.

Demsetz, R & A ; Strahan, P: ( 1997 ) : “ Diversification, Size and Risk at Bank Keeping Companies: Journal of Money, Credit & A ; Banking. Vol.29, No.3.pp. 300-313.

Does Overseas Appetite for Bonds Put the U.S. Economy at Risk? ( online ) available from & lt ; hypertext transfer protocol: //online.wsj.com/public/article/SB111202112287190860.html & gt ; [ accessed on 22th January 2010 ]

Hayden, E: Porath, D & A ; Westernhagen, N ( 2007 ) ” Does Diversification Improve the Performance of German Banks? Evidence from Individual Bank Loan Portfolios? “ Journal of Financial Services Research: ( online ) Vol.32, No.3. Pp.123-140. Available from: hypertext transfer protocol: //0-www.springerlink.com.unicat.bangor.ac.uk/content/nq5up42w1976/ ? p=c9f71ab116a94ac8a20c4f466f203552 & A ; pi=11. ( Accessed on 17th January 2010 ) .

Jacques, K & A ; Nigro, P ( 1997 ) : Risk-based capital, portfolio hazard, and bank capital: A coincident equations attack ( 1997 ) : Journal of Economics and Business ” : Vol. 49, No. 6, Pp.533-547.

Kaufman, G ( 2009 ) : “ Bank Failures, Systemic Risk, and Bank Regulation ” The Cato Journal. ( online ) Vol.16, No.1. Pp.1-22. Available from: hypertext transfer protocol: //www.cato.org/pubs/journal/cj16n1-2.html. ( Accessed on 12 January 2010 ) .

M, Ellis David & A ; Flannery, Mark J ( 1992 ) : “ Does the debt market buttocks big Bankss, hazard? “ : Time series grounds from money Centre Cadmiums: Journal of Monetary Economics.Vol.30, No.3. Pp. 481-502.

Moreno, R ( 2009 ) : “ The changing nature of hazards confronting Bankss ” . BIS Papers No 28. ( online ) pp. 67-96. Available from: hypertext transfer protocol: //www.bis.org/publ/bppdf/bispap28d.pdf. ( Accessed on 23 January 2010 ) .

Sironi, A: ( 2001 ) : “ An Analysis of European Banks ‘ SND Issues and its Deductions for the Design of a Mandatory Subordinated Debt Policy ” Journal of Financial Services Research: Vol.20, No. 2 – 3. Pp.223-266.

The hazard associated with Bankss ‘ foreign adoption ( 2000 ) Economic Bulletin

( online ) available from & lt ; hypertext transfer protocol: //www.encyclopedia.com/doc/1G1-69066065.html & gt ;

[ Accessed on 25th January 2010 ] .

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