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Advisor(s)
Abstract(s)
The Basel regulation put forth by the Basel Committee of Banking Supervision (BCBS) is an
ambitious endeavor that aims at regulating the banking industry worldwide. The Basel III
accord introduced in 2010 is the latest iteration of this effort. Implementation of Basel III is
well underway today and programmed to take full effect in 2019. The criticism towards Basel
III is mainly pointed towards the negative impact it could have on the economy and the profitability
of banking institutions. In addition, the impacts on different banking business models
could be heterogeneous, benefitting some models more than others. The main question this
thesis tries to answer is if wealth effects on European exchange traded banks brought by Basel
III will be negative and if different business models will be impacted differently. To answer
this question a group of European banks were selected. Bank business models were assigned
using the k-means clustering algorithm where banks are clustered into traditional vs.
non-traditional categories depending on the asset and liability structure of the balance sheet.
An event study is then conducted to measure the wealth effects caused by the introduction of
Basel III on an aggregate level and by business model. The event studies are conducted on six
key dates from press releases by the BCBS to better capture the full effects of Basel III. Lastly,
a regression model is used to check whether there is any relationship between the abnormal
returns on the pre-specified event dates and bank business models. This thesis finds that
impacts on different event dates were not homogenous: some resulted in positive abnormal
returns and some negative therefore it was not possible to conclude if the impact of Basel III
was negative on European exchange traded banks. From the results, it was not possible to
conclude if any business model is impacted more or less severely by Basel III. The results
suggest that there are more dynamics at play that could influence the value of exchange traded
European banks.