The Differential Impact of Bank Size on Systemic Risk

Amy Lorenc and Jeffery Y. Zhang

No 2018-066, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine whether financial stress at larger banks has a different impact on the real economy than financial stress at smaller banks. Our empirical results show that stress experienced by banks in the top 1 percent of the size distribution leads to a statistically significant and negative impact on the real economy. This impact increases with the size of the bank. The negative impact on quarterly real GDP growth caused by stress at banks in the top 0.15 percent of the size distribution is more than twice as large as the impact caused by stress at banks in the top 0.75 percent, and more than three times as large as the impact caused by stress at banks in the top 1 percent. These results are broadly informative as to how the stringency of regulatory standards should vary with bank size, and support the idea that the largest banks should be subject to the most stringent requirements while smaller banks should be subject to successively less stringent requirements.

Keywords: Bank failures; Bank size; Financial regulation; Systemic risk; Tailoring (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2018-09-28
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2018-66

DOI: 10.17016/FEDS.2018.066

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