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

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dc.contributor.author Mueller, Lukas
dc.contributor.author Stoeckl, Sebastian
dc.contributor.author Mueller, Johanna
dc.contributor.author Schiereck, Dirk
dc.date.accessioned 2023-12-26T18:44:25Z
dc.date.available 2023-12-26T18:44:25Z
dc.date.issued 2024-01-03
dc.identifier.isbn 978-0-9981331-7-1
dc.identifier.other 82df2068-173a-478d-b8f2-c56509f08646
dc.identifier.uri https://hdl.handle.net/10125/106935
dc.language.iso eng
dc.relation.ispartof Proceedings of the 57th Hawaii International Conference on System Sciences
dc.rights Attribution-NonCommercial-NoDerivatives 4.0 International
dc.rights.uri https://creativecommons.org/licenses/by-nc-nd/4.0/
dc.subject FinTech: Disruption in Financial Services
dc.subject crypto-related risk
dc.subject fraud
dc.subject ftx
dc.subject operational risk
dc.title Estimating Crypto-Related Risk: Market-Based Evidence from FTX’s Failure and Its Contagion on U.S. Banks
dc.type Conference Paper
dc.type.dcmi Text
dcterms.abstract We 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.extent 10 pages
prism.startingpage 4589
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