What can we learn about repurchase programmes and systemic risk? Evidence from US banks during financial turmoil

Abstract

This paper contributes to the debate on systemic risk by measuring and comparing systemic risk and interconnectedness when banks repurchase shares during financial turmoil. It assesses the extent to which buyback programmes within banks contribute to systemic risk, relying on several measures of systemic risk and connectedness in a sample of 112 US banks during both a tranquil and an unstable period. Empirical results reveal remarkable increases in systemic risk in repurchasing banks compared to non-repurchasing banks and they are more exposed to it in difficult periods such as the European debt crisis and COVID-19. Banks that repurchased shares strengthened indirect links during systemic events and are potentially riskier. The results also classify and rank banks in terms of systemic risk involvement and connectedness and contribute to the identification of systematically important banks.