# 13-186/IV/DSF68 (2013-11-15)

Author(s)
Amelia Pais, Massey University, College of Business, School of Economics and Finance, Auckland, New Zealand; Philip A. Stork, VU University Amsterdam, and Duisenberg School of Finance
Keywords:
bear raids, short-selling bans, financial institutions’ risk, systemic risk, leverage capital requirements, Extreme Value Theory
JEL codes:
C14, G01, G15, G21

During the Global Financial Crisis, regulators imposed short-selling bans to protect financial institutions. The rationale behind the bans was that “bear raids”, driven by short-sellers, would increase the individual and systemic risk of financial institutions, especially for institutions with high leverage. This study uses Extreme Value Theory to estimate the effect of short-selling on financial institutions’ individual and systemic risks in France, Italy and Spain; it also analyses the relationship between financial institutions’ leverage and short-selling. The results show that short-sellers appear to specifically target institutions with lower capital levels. Furthermore, institutions’ risk-levels and changes in short-selling positions tend to move in tandem.