Business complexity and geographic expansion in banking

Isabel Argimon () and Maria Rodriguez-Moreno

No 2132, Working Papers from Banco de España

Abstract: Using Spanish confidential supervisory data, this paper examines the effect of geographic and business complexity, their interaction and relative importance for banks’ risk, where the degree of complexity stems from the corporate structure of banking groups affiliates. The results show that while business complexity results in higher risk, geographic complexity gives rise to diversification benefits, thus lowering risk. However, geographic complexity alone is not enough, as its effect depends on how it interacts with business complexity. Higher business complexity abroad in relation to that at home may counterbalance the benefits of diversification. In the same vein, focusing abroad on areas in which the group does not have expertise at home also results in higher risk.

Keywords: risk; global banking; bank complexity; diversification benefits (search for similar items in EconPapers)
JEL-codes: F21 F23 G21 G32 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2021-08
New Economics Papers: this item is included in nep-ban, nep-cwa and nep-isf
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2132

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