The Journal of Finance

Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies

Published: 05/13/2013   |   DOI: 10.1111/jofi.12057

ANDREW ELLUL, VIJAY YERRAMILLI

We construct a risk management index (RMI) to measure the strength and independence of the risk management function at bank holding companies (BHCs). The U.S. BHCs with higher RMI before the onset of the financial crisis have lower tail risk, lower nonperforming loans, and better operating and stock return performance during the financial crisis years. Over the period 1995 to 2010, BHCs with a higher lagged RMI have lower tail risk and higher return on assets, all else equal. Overall, these results suggest that a strong and independent risk management function can curtail tail risk exposures at banks.

Does Poor Performance Damage the Reputation of Financial Intermediaries? Evidence from the Loan Syndication Market

Published: 11/14/2011   |   DOI: 10.1111/j.1540-6261.2011.01692.x

RADHAKRISHNAN GOPALAN, VIKRAM NANDA, VIJAY YERRAMILLI

We investigate the effect of poor performance on financial intermediary reputation by estimating the effect of large‐scale bankruptcies among a lead arranger's borrowers on its subsequent syndication activity. Consistent with reputation damage, such lead arrangers retain larger fractions of the loans they syndicate, are less likely to syndicate loans, and are less likely to attract participant lenders. The consequences are more severe when borrower bankruptcies suggest inadequate screening or monitoring by the lead arranger. However, the effect of borrower bankruptcies on syndication activity is not present among dominant lead arrangers, and is weak in years in which many lead arrangers experience borrower bankruptcies.