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The ECB’s 2019 Liquidity Stress Test: An Event Study Evaluating the Impact on Owners and Creditors

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  2. Economics, Finance, Business & Management
  3. Credit and Capital Markets – Kredit und Kapital
  4. Vol. 54, Issue 2
  5. pp. 223–263

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Börner, C., Krettek, J. The ECB’s 2019 Liquidity Stress Test: An Event Study Evaluating the Impact on Owners and Creditors. Credit and Capital Markets – Kredit und Kapital, 54(2), 223-263. https://doi.org/10.3790/ccm.54.2.223
Börner, Christoph J. and Krettek, Jonas "The ECB’s 2019 Liquidity Stress Test: An Event Study Evaluating the Impact on Owners and Creditors" Credit and Capital Markets – Kredit und Kapital 54.2, 2021, 223-263. https://doi.org/10.3790/ccm.54.2.223
Börner, Christoph J./Krettek, Jonas (2021): The ECB’s 2019 Liquidity Stress Test: An Event Study Evaluating the Impact on Owners and Creditors, in: Credit and Capital Markets – Kredit und Kapital, vol. 54, iss. 2, 223-263, [online] https://doi.org/10.3790/ccm.54.2.223
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The ECB’s 2019 Liquidity Stress Test: An Event Study Evaluating the Impact on Owners and Creditors

Börner, Christoph J. | Krettek, Jonas

Credit and Capital Markets – Kredit und Kapital, Vol. 54 (2021), Iss. 2 : pp. 223–263

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.54.2.223
Language
English
Pages
41
Keywords

Author Details

Prof. Dr. Christoph J. Börner, Heinrich Heine University Düsseldorf, Chair of Business Administration, especially Financial Services, Universitätsstraße. 1, D-40225 Düsseldorf.

Jonas Krettek, Heinrich Heine University Düsseldorf, Chair of Business Administration, especially Financial Services, Universitätsstraße. 1, D-40225 Düsseldorf.

References

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  2. Alexander, C./Kaeck, A. (2008): Regime dependent determinants of credit default swap spreads, The Journal of Banking and Finance, Vol. 32(6), 1008–1021.  Google Scholar
  3. Alves, C./Mendes, V./Pereira da Silva, P. (2015): Do stress tests matter? A study on the impact of the disclosure of stress test results on European financial stocks and CDS markets, Applied Economics, Vol. 47(12), 1213–1229.  Google Scholar
  4. Bey, R./Pinches, G. (1980): Additional Evidence of Heteroscedasticity in the Market Model, Journal of Financial and Quantitative Analysis, Vol. 15(2), 299–322.  Google Scholar
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  7. Bonse, A. (2004): Informationsgehalt von Konzernabschlüssen nach HGB, IAS und US-GAAP. Eine empirische Analyse aus Sicht der Eigenkapitalgeber, also: dissertation Ruhr-Universität Bochum (2002), Bochumer Beiträge zur Unternehmensführung, No. 69, Berlin.  Google Scholar
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  27. Henderson, G. (1990): Problems and Solutions in Conducting Event Studies, in: The Journal of Risk and Insurance, Vol. 57(2), 282–306.  Google Scholar
  28. Irresberger, F./Gabrysch, J./Gabrysch, S./Weiß, G. (2018): Liquidity Tail Risk and Credit Default Swap Spreads, European Journal of Operational Research, Vol. 269(3), 1137–1153.  Google Scholar
  29. Kaup, K. (2008): Transaktionserfolg von Mergers & Acquisitions in der Logistik. Die Konsolidierung aus Sicht des Kapitalmarktes, also: dissertation European Business School Oestrich-Winkel (2008), 1th ed., Wiesbaden.  Google Scholar
  30. Longstaff, F./Schwartz, E. (1995): A Simple Approach to Valuing Risky Fixed and Floating Rate Debt, The Journal of Finance, Vol. 50(3), 789–819.  Google Scholar
  31. MacKinlay, A. (1997): Event Studies in Economics and Finance, Journal of Economic Literature, Vol. 35(1), 13–39.  Google Scholar
  32. Meine, C./Supper, H./Weiß, G. (2016): Is Tail Risk Priced in Credit Default Swap Premia?, Review of Finance, Vol. 20, 287–336.  Google Scholar
  33. Morgan, D./Peristiani, S./Savino, V. (2014): The Information Value of the Stress Test, Journal of Money, Credit and Banking, Vol. 46(7), 1479–1500.  Google Scholar
  34. Morse, D. (1984): An Econometric Analysis of the Choice of Daily Versus Monthly Returns in Tests of Information Content, Journal of Accounting Research, Vol. 22(2), 605–623.  Google Scholar
  35. Mussler, H. (2019): Viele Banken schlecht für Liquiditätskrise gewappnet, Frankfurter Allgemeine Zeitung, online available at: https://www.faz.net/aktuell/finanzen/ezb-stresstest-zeigt-schwaechen-von-banken-16421689.html, (date of access: 04.05.2021).  Google Scholar
  36. Neretina, E./Sahin, C./De Haan, J. (2014): Banking stress test effects on returns and risks, DNB Working Paper, No. 419.  Google Scholar
  37. O’Donovan, D. (2019): Half of banks would not survive a six month crisis, ECB warns, Irish Independent, online available at: https://www.independent.ie/business/irish/half-of-banks-would-not-survive-a-six-month-crisis-ecb-warns-38570966.html, (date of access: 04.05.2021).  Google Scholar
  38. Pelster, M./Vilsmeier, J. (2018): The determinants of CDS spreads: evidence from the model space, Review of Derivatives Research, Vol. 21, 63–118.  Google Scholar
  39. Pfauth, A. (2008): Goodwillbilanzierung nach US-GAAP. Kapitalmarktreaktionen auf die Abschaffung der planmäßigen Abschreibung, also: dissertation Universität Tübingen (2007), 1th ed., Wiesbaden.  Google Scholar
  40. Röder, K. (1999): Kurswirkungen von Meldungen deutscher Aktiengesellschaften, also: Habilitation Universität Augsburg (1999), Reihe: Quantitative Ökonomie, Bd. 98, Lohmar/Köln.  Google Scholar
  41. Schremper, R. (2002): Aktienrückkauf und Kapitalmarkt. Eine theoretische und empirische Analyse deutscher Aktienrückkaufprogramme, also: dissertation Ruhr-Universität Bochum (2001), Bochumer Beiträge zur Unternehmensführung, No. 63, Berlin.  Google Scholar
  42. Sharpe, W. (1963): A Simplified Model for Portfolio Analysis, Management Science, Vol. 9(2), 277–293.  Google Scholar
  43. Strong, N. (1992): Modelling Abnormal Returns: A Review Article, Journal of Business Finance & Accounting, Vol. 19(4), 533–553.  Google Scholar
  44. Thompson, J. (1988): More Methods That Make Little Difference In Event Studies, Journal of Business Finance & Accounting, Vol. 15(1), 77–86.  Google Scholar
  45. Thomson Reuters (2019): Half euro zone banks wouldn’t survive cash drought: ECB, online available at: https://www.reuters.com/article/us-ecb-banks-deposits-idUSKBN1WM1E5, (date of access: 04.05.2021).  Google Scholar
  46. Aharony, J./Swary, I. (1996): Additional evidence on the information-based contagion effects of bank failures, The Journal of Banking and Finance, Vol. 20(1), 57–69.  Google Scholar
  47. Alexander, C./Kaeck, A. (2008): Regime dependent determinants of credit default swap spreads, The Journal of Banking and Finance, Vol. 32(6), 1008–1021.  Google Scholar
  48. Alves, C./Mendes, V./Pereira da Silva, P. (2015): Do stress tests matter? A study on the impact of the disclosure of stress test results on European financial stocks and CDS markets, Applied Economics, Vol. 47(12), 1213–1229.  Google Scholar
  49. Bey, R./Pinches, G. (1980): Additional Evidence of Heteroscedasticity in the Market Model, Journal of Financial and Quantitative Analysis, Vol. 15(2), 299–322.  Google Scholar
  50. Bild (2019): Hälfte unserer Banken rasselt durch EZB-Stresstest, online available at: https://www.bild.de/geld/wirtschaft/wirtschaft/euro-haelfte-der-banken-rasselt-beim-ezb-stresstest-durch-65193328.bild.html, (date of access: 04.05.2021).  Google Scholar
  51. Binder, J. (1998): The Event Study Methodology Since 1969, Review of Quantitative Finance and Accounting, Vol. 11(2), 111–137.  Google Scholar
  52. Bonse, A. (2004): Informationsgehalt von Konzernabschlüssen nach HGB, IAS und US-GAAP. Eine empirische Analyse aus Sicht der Eigenkapitalgeber, also: dissertation Ruhr-Universität Bochum (2002), Bochumer Beiträge zur Unternehmensführung, No. 69, Berlin.  Google Scholar
  53. Brown, S./Warner, J. (1985): Using Daily Stock Returns. The Case of Event Studies, Journal of Financial Economics, Vol. 14(1), 3–31.  Google Scholar
  54. Campbell, C./Wasley, C. (1993): Measuring security price performance using daily NASDAQ returns, Journal of Financial Economics, Vol. 33(1), 73–92.  Google Scholar
  55. Candelon, B./Sy, A. (2015): How Did Markets React to Stress Tests?, IMF Working Paper, WP/15/75.  Google Scholar
  56. Collin-Dufresne, P./Goldstein, R./Martin, J. (2001): The Determinants of Credit Spread Changes, The Journal of Finance, Vol. 56(6), 2177–2207.  Google Scholar
  57. Corrado, C. (1989): A nonparametric test for abnormal security-price performance in event studies, Journal of Financial Economics, Vol. 23(2), 385–395.  Google Scholar
  58. Deutsche Börse AG (2007): Leitfaden zu den Volatilitätsindizes der Deutschen Börse, Version 2.4.  Google Scholar
  59. Doumet, M. (2013): Payout Policy and Event Study Methodology, also: dissertation Universität Mannheim (2013).  Google Scholar
  60. Ericsson, J./Jacobs, K./Oviedo, R. (2009): The Determinants of Credit Default Swap Premia, The Journal of Financial and Quantitative Analysis, Vol. 44(1), 109–132.  Google Scholar
  61. Eurex Frankfurt AG (2021): VSTOXX® – Europas Benchmark für Volatilität, online available at: https://www.eurex.com/ex-de/maerkte/vol/vstoxx, (date of access: 30.04.2021).  Google Scholar
  62. European Central Bank (2019a): Sensitivity Analysis of Liquidity Risk – Stress Test 2019.  Google Scholar
  63. European Central Bank (2019b): ECB Sensitivity analysis of Liquidity Risk – Stress Test 2019. Methodological note.  Google Scholar
  64. European Central Bank (2019c): Sensitivity Analysis of Liquidity Risk – Stress Test 2019. Final results.  Google Scholar
  65. Fama, E./Fisher, L./Jensen, M./Roll, R. (1969): The Adjustment of Stock Prices to New Information, International Economic Review, Vol. 10(1), 1–21.  Google Scholar
  66. Fernandes, M./Igan, D./Pinheiro, M. (2015): March Madness in Wall Street: (What) Does the Market Learn from Stress Tests?, IMF Working Paper, WP/15/271.  Google Scholar
  67. Focus (2019): EZB-Aufsicht sieht Banken gut aufgestellt für Krisenfall, online available at: https://www.focus.de/finanzen/boerse/wirtschaftsticker/konjunktur-ezb-aufsicht-sieht-banken-gut-aufgestellt-fuer-krisenfall_id_11215578.html, (date of access: 04.05.2021).  Google Scholar
  68. Georgescu, M./Gross, M./Kapp, D./Kok, C. (2017): Do stress tests matter? Evidence from the 2014 and 2016 stress tests, ECB Working Paper, No. 2054.  Google Scholar
  69. Greene, W. (2012): Econometric Analysis, 7th ed., Harlow.  Google Scholar
  70. Handelsblatt (2019): EZB-Aufsicht sieht Banken nach speziellem Stresstest gut aufgestellt für Krisenfall, online available at: https://www.handelsblatt.com/finanzen/geldpolitik/bankenaufseher-ezb-aufsicht-sieht-banken-nach-speziellem-stresstest-gut-aufgestellt-fuer-krisenfall/25091738.html?ticket=ST-2697590-WwstEAcXtTb4FGpdL0oQ-ap3, (date of access: 04.05.2021).  Google Scholar
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  72. Henderson, G. (1990): Problems and Solutions in Conducting Event Studies, in: The Journal of Risk and Insurance, Vol. 57(2), 282–306.  Google Scholar
  73. Irresberger, F./Gabrysch, J./Gabrysch, S./Weiß, G. (2018): Liquidity Tail Risk and Credit Default Swap Spreads, European Journal of Operational Research, Vol. 269(3), 1137–1153.  Google Scholar
  74. Kaup, K. (2008): Transaktionserfolg von Mergers & Acquisitions in der Logistik. Die Konsolidierung aus Sicht des Kapitalmarktes, also: dissertation European Business School Oestrich-Winkel (2008), 1th ed., Wiesbaden.  Google Scholar
  75. Longstaff, F./Schwartz, E. (1995): A Simple Approach to Valuing Risky Fixed and Floating Rate Debt, The Journal of Finance, Vol. 50(3), 789–819.  Google Scholar
  76. MacKinlay, A. (1997): Event Studies in Economics and Finance, Journal of Economic Literature, Vol. 35(1), 13–39.  Google Scholar
  77. Meine, C./Supper, H./Weiß, G. (2016): Is Tail Risk Priced in Credit Default Swap Premia?, Review of Finance, Vol. 20, 287–336.  Google Scholar
  78. Morgan, D./Peristiani, S./Savino, V. (2014): The Information Value of the Stress Test, Journal of Money, Credit and Banking, Vol. 46(7), 1479–1500.  Google Scholar
  79. Morse, D. (1984): An Econometric Analysis of the Choice of Daily Versus Monthly Returns in Tests of Information Content, Journal of Accounting Research, Vol. 22(2), 605–623.  Google Scholar
  80. Mussler, H. (2019): Viele Banken schlecht für Liquiditätskrise gewappnet, Frankfurter Allgemeine Zeitung, online available at: https://www.faz.net/aktuell/finanzen/ezb-stresstest-zeigt-schwaechen-von-banken-16421689.html, (date of access: 04.05.2021).  Google Scholar
  81. Neretina, E./Sahin, C./De Haan, J. (2014): Banking stress test effects on returns and risks, DNB Working Paper, No. 419.  Google Scholar
  82. O’Donovan, D. (2019): Half of banks would not survive a six month crisis, ECB warns, Irish Independent, online available at: https://www.independent.ie/business/irish/half-of-banks-would-not-survive-a-six-month-crisis-ecb-warns-38570966.html, (date of access: 04.05.2021).  Google Scholar
  83. Pelster, M./Vilsmeier, J. (2018): The determinants of CDS spreads: evidence from the model space, Review of Derivatives Research, Vol. 21, 63–118.  Google Scholar
  84. Pfauth, A. (2008): Goodwillbilanzierung nach US-GAAP. Kapitalmarktreaktionen auf die Abschaffung der planmäßigen Abschreibung, also: dissertation Universität Tübingen (2007), 1th ed., Wiesbaden.  Google Scholar
  85. Röder, K. (1999): Kurswirkungen von Meldungen deutscher Aktiengesellschaften, also: Habilitation Universität Augsburg (1999), Reihe: Quantitative Ökonomie, Bd. 98, Lohmar/Köln.  Google Scholar
  86. Schremper, R. (2002): Aktienrückkauf und Kapitalmarkt. Eine theoretische und empirische Analyse deutscher Aktienrückkaufprogramme, also: dissertation Ruhr-Universität Bochum (2001), Bochumer Beiträge zur Unternehmensführung, No. 63, Berlin.  Google Scholar
  87. Sharpe, W. (1963): A Simplified Model for Portfolio Analysis, Management Science, Vol. 9(2), 277–293.  Google Scholar
  88. Strong, N. (1992): Modelling Abnormal Returns: A Review Article, Journal of Business Finance & Accounting, Vol. 19(4), 533–553.  Google Scholar
  89. Thompson, J. (1988): More Methods That Make Little Difference In Event Studies, Journal of Business Finance & Accounting, Vol. 15(1), 77–86.  Google Scholar
  90. Thomson Reuters (2019): Half euro zone banks wouldn’t survive cash drought: ECB, online available at: https://www.reuters.com/article/us-ecb-banks-deposits-idUSKBN1WM1E5, (date of access: 04.05.2021).  Google Scholar

Abstract

The liquidity stress test (LiST) 2019 by the European Central Bank (ECB) examines the liquidity situation of banks, which is novel at the European level. Therefore, a well-founded empirical analysis is necessary to derive implications for the capital market. This paper investigates the impact on stock returns and credit default swap (CDS) spread changes of the participating banks using an event study methodology. This approach allows for conclusions about the entire capital market. A major problem with the sample, event clustering, is addressed with appropriate test statistics. The paper provides evidence of the absence of a capital market reaction, which could be the goal of supervisors, namely, being able to assess the banking sector and providing general information without triggering panic.

Table of Contents

Section Title Page Action Price
Christoph J. Börner / Jonas Krettek: The ECB’s 2019 Liquidity Stress Test: An Event Study Evaluating the Impact on Owners and Creditors 1
Abstract 1
I. Introduction 1
II. Theoretical Background 3
1. Liquidity Stress Test 3
a) Background and Test Methodology 3
b) Results 5
2. Literature Review and Hypotheses Building 7
III. Methodology 1
1. Research Approach 1
2. Data 1
3. Estimation of Abnormal CDS Spread Changes and Returns 1
a) CDS Spread Changes 1
b) Stock Price Returns 1
4. Regression Requirements and Significance Tests 1
IV. Findings 2
1. Descriptive Statistics and Regression Parameters 2
2. Robustness 2
3. Event Study 2
V. Discussion 2
1. The Capital Market Reaction to the LiST 2
2. The ECB’s Potential Objective 2
3. Limitations and Further Research Approaches 3
VI. Conclusion 3
References 3
Appendix 3

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