Bank size, credit and the sources of bank market risk

Ryan Stever

No 238, BIS Working Papers from Bank for International Settlements

Abstract: This study examines bank risk by investigating the equity and loan portfolio characteristics of publicly-traded bank holding companies. Unlike the pattern for non-financial firms, equity betas of large banks are two to five times greater than those of small banks. In explaining this, we note that regulation imposes an effective cap on banks' equity volatility. Because the portfolios of small banks are less diversified, this cap has a greater effect on small banks than large banks. But we reject the hypothesis that small banks lower their equity volatility through lower leverage. Instead, we find that the reduced ability of small banks to diversify forces them to either pick borrowers whose assets have relatively low credit risk or make loans that are backed by relatively more collateral.

Keywords: FBank size; beta; idiosyncratic; volatility (search for similar items in EconPapers)
Pages: 35 pages
Date: 2007-11
New Economics Papers: this item is included in nep-ban, nep-reg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://www.bis.org/publ/work238.pdf Full PDF document (application/pdf)
http://www.bis.org/publ/work238.htm (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:238

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().