The dissertation composes three essays on bank-related risk. The first essay studies the relation between bank herding and financial system stability. I develop a set of bank-specific, time-varying measures of herding in asset, liability, and off-balance sheet (OBS) portfolios and empirically examine the relation between bank herding and systemic risk contribution. I find that for large banks, asset herding is associated with lower, liability herding is associated with higher, and OBS herding does not have a significant relation with systemic risk contribution. During crises, the relation of asset herding is stronger, the relation of liability herding is weaker, and the relation of OBS herding remains insignificant. I find that the “too-many-to-fail” effect contributes to the negative relation between bank herding and systemic risk contribution.

The second essay investigates the relationship between EAs and banks contributions to systemic risk. Our analysis examines estimates for quarters before and after EAs during a four-quarter event window. We find significantly smaller coefficient estimates after EAs than before EAs, suggesting that EAs are related to reduced systemic risk. We provide evidence that EAs affect systemic risk primarily through reduced bank leverage, but also partly through reductions in portfolio risk and systemic importance. Our results also show that the effects are largest for severe EAs and EAs initiated against firms.

Finally, the third essay examines whether the minimum wage standard affects the mortgage default risk. We use the 2007-2009 series of the federal minimum wage increase and examine the effect on the default rate of conventional mortgages bought by Fannie Mae and Freddie Mac. We find that the rise in the federal minimum wage has a negative effect on the default rate of mortgages in affected states. We also find that the effect is possibly attributed to increased borrowers’ income and improved property prices.