Value at Risk Analysis of Selected European Commercial Banks

Abstract

This research investigates and examines the proper risk management of five European commercial banks employing the Value at Risk (VaR) model through 2006 until 2020. Two of these banks are located in France, while the other three are in Germany. The collected data is monthly-based such that it consists of 180 observations. In order to apply the VaR model, a pre-study is considered aiming to regress the dependent variable (bank stock prices) on the independent variables (market indices, Three-Month Treasury bill rate and exchange rate). The effectiveness of the independent variables is considered statistically significant taking into account a 95% confidence interval. The major part in the methodology intends to use the variables’ coefficients and standard deviations to evaluate the VaR for the studied commercial banks. The results obtained show that the studied commercial banks are risky since they all have more than 15% as a percentage of their equity that is at risk.