janbaz.mehdi@spes.uniud.it
tel. +39 0432 24-9352
(Supervisor Josanco Floreani, Co-supervisor Alberto Dreassi)

Essays on Banking and Sovereign Risk Management

Abstract:
Banking sector as backbone of economy has a critical role in the crisis protection and
slowing down the spread of a problem in whole of the economy. This fact shed light on
the importance of banking risk management and financial stability studies. The thesis
consists of three essays that cover three critical areas of risk management in banking
sector and sovereign sector. Credit Risk, Political Risk and Country Risk are three key
components of financial stability framework recommending by this study. In particular,
these essays are: 1. The Optimization of Banking Credit Risk Management in Eurozone,
2. Impact of Political Instability Risk on Banking Sector, and 3. A Regional Analysis on
Sovereign Credit Risk Management: How Bank-Specific Factors Matter? The first study
aims to find out how banking CDS spreads as key measure of bank’s credit risk is
predicted by other financial risk factors through an innovative risk-oriented approach. It
employs a large vector of macroeconomic, market-based, bank-specific and global
variables as well as crisis dummy. Also, it uses the Moody’s credit rating as control
variable. The second essay aims to study the impact of different political instability risk
indicators on bank’s capital structure and risk-taking behavior of a large cross-country
sample of banks. It controls the effect of macroeconomic variables, country risk and debt
sustainability. The third research aims to find the key triggers and driving factors of
sovereign credit risk of Eurozone and to examine the importance of bank-specific factors
in predicting the sovereign CDS spread dynamics. It tests the impact of a large vector of
regional and global factors on change rate of Europe sovereign CDS spreads as regional
credit risk measure through a four-stage linear approach. First, it evaluates the impact of
regional macroeconomic and market-based factors, then it adds regional bank-specific
variables to the analysis, next it brings the global financial risk factors into the analysis,
and in the last stage it generates another model with most significant factors of previous
steps and a crisis dummy in order to optimize the total predictions. All the essays are
empirical studies based on the historical time series data. In the process of data gathering,
I will use different sources like Bloomberg, DataStream and Bankscope databases. The
main methods that implemented in these researches are Quantile Regression, GMM and
Multiple Regressions, respectively. I will perform the data analysis through the STATA
and SPSS software products. Finally, the outcomes of these empirical studies will
recommend a broader framework for risk management and financial stability in banking
sector and real economy.