Bank Income Diversification, Asset Correlation and Systemic Risk

The paper analyzes central banks macroprudencial policy and its instruments. The issues of their classification, option, design and adjustment are connected with financial stability of overall financial system and its specific institutions. The macroprudencial instruments effectiveness is evaluated from the two points: how they mitigate temporal and intersectoral systemic risk development (market, credit, and operational). The future macroprudentional policy studies directions are noted to identify the instruments, which can be used to limit the financial systemdevelopment procyclicality, mitigate the credit and financial cycles volatility.

This study uses the DEA (Data Envelopment Analysis) method to estimate the technical efficiency index of 34 Vietnamese commercial banks in the period 2007-2015, and then it analyzes the impact of income diversification on the operational efficiency of Vietnamese commercial banks through a censored regression model - the Tobit regression model. Research results indicate that income diversification has positive effects on the operational efficiency of Vietnamese commercial banks in the research period. Based on study results, in this research some recommendations forpolicy are given to enhance the operational efficiency of Vietnam’s commercial banking system.

AbstractStructured products like collateralized loan obligations (CLOs) tend to offer significantly higher yield spreads than corporate bonds (CBs) with the same rating. At the same time, empirical evidence does not indicate that this higher yield is reduced by higher default losses of CLOs. The evidence thus suggests that CLOs offer higher expected returns compared to CB with similar credit risk. This study aims to analyze whether this return difference is captured by asset pricing factors. We show that market risk is the predominant risk factor for both CBs and CLOs. CLO investors, however, additionally demand a premium for their risk exposure towards systemic risk. This premium is inversely related to the rating class of the CLO.