Diversification and bank stability

Shuo Liang, Fernando Moreira and Joosung Lee

Economics Letters, 2020, vol. 193, issue C

Abstract: This paper tests the theory of Wagner (2010) regarding the role of diversification in bank systemic risk and investigates whether this effect is different for bank standalone risk. We innovatively construct a country-level diversification measure to capture the risk distribution among banks. Based on a large dataset consisting of 1,346 international publicly listed banks from 49 countries from 1998 to 2018, our results confirm existing theoretical conclusions that higher diversification leads to more systemic risk and less bank standalone risk.

Keywords: Country-level diversification; Idiosyncratic risk; Systemic risk (search for similar items in EconPapers)
JEL-codes: G20 G21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:193:y:2020:i:c:s0165176520302081

DOI: 10.1016/j.econlet.2020.109312

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