Estimating Crypto-Related Risk: Market-Based Evidence from FTX’s Failure and Its Contagion on U.S. Banks

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dc.contributor.authorMueller, Lukas
dc.contributor.authorStoeckl, Sebastian
dc.contributor.authorMueller, Johanna
dc.contributor.authorSchiereck, Dirk
dc.date.accessioned2023-12-26T18:44:25Z
dc.date.available2023-12-26T18:44:25Z
dc.date.issued2024-01-03
dc.identifier.doi10.24251/HICSS.2023.550
dc.identifier.isbn978-0-9981331-7-1
dc.identifier.other82df2068-173a-478d-b8f2-c56509f08646
dc.identifier.urihttps://hdl.handle.net/10125/106935
dc.language.isoeng
dc.relation.ispartofProceedings of the 57th Hawaii International Conference on System Sciences
dc.rightsAttribution-NonCommercial-NoDerivatives 4.0 International
dc.rights.urihttps://creativecommons.org/licenses/by-nc-nd/4.0/
dc.subjectFinTech: Disruption in Financial Services
dc.subjectcrypto-related risk
dc.subjectfraud
dc.subjectftx
dc.subjectoperational risk
dc.titleEstimating Crypto-Related Risk: Market-Based Evidence from FTX’s Failure and Its Contagion on U.S. Banks
dc.typeConference Paper
dc.type.dcmiText
dcterms.abstractWe use historical covariance between stock returns of U.S. banks and bitcoin returns to estimate a sensitivity measure that captures crypto-related risk in financial institutions. The measure effectively explains cross-sectional stock returns of 219 U.S. based financial institutions in response to the failure of FTX on November 11, 2022. Overall we document negative contagion effects on the market valuation of U.S. banks. We further show that this risk measure is unrelated to variables that have been used to explain operational risk in previous literature, i.e., corporate governance and business complexity. However, we document a significant relation with bank liquidity as measured by the Tier 1 capital adequacy ratio. We conclude that, on average, it is the banks with sufficient liquidity reserves that venture into the crypto sphere. Our approach offers individual investors and customers the opportunity to leverage market efficiency to evaluate the idiosyncratic level of crypto-related risk in a financial institution.
dcterms.extent10 pages
prism.startingpage4589

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