The rise of big U.S. banks and the fall of big European banks: A statistical decomposition
Ricardo Fernholz and
European Economic Review, 2021, vol. 135, issue C
Bank asset concentration has risen in the U.S. since the 1980s and declined in Europe since 2008. We decompose this rise and fall of big banks using rank-based empirical methods that characterize dynamic power law distributions into two shaping factors: the growth rates and idiosyncratic volatilities of assets for different size-ranked banks. Higher relative growth rates for the largest U.S. banks led to greater asset concentration. Idiosyncratic volatilities for U.S. banks declined, resulting in lower fundamental volatility of bank assets — the aggregate volatility due to idiosyncratic, bank-specific shocks — despite the rise in concentration since the 1990s. In contrast, the relative growth rates for the largest European banks declined and this led to the lower concentration of European bank assets. Over this same time period, the idiosyncratic volatilities and fundamental volatility of European bank assets have been stable.
Keywords: Bank size distributions; Bank structure; Dynamic power laws; Granularities; Financial stability; Fundamental volatility (search for similar items in EconPapers)
JEL-codes: C14 C81 E58 G21 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:135:y:2021:i:c:s0014292121000763
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