Banks’ size, scope and systemic risk: What role for conflicts of interest?

Olivier De Jonghe, Maaike Diepstraten and Glenn Schepens

Journal of Banking & Finance, 2015, vol. 61, issue S1, S3-S13

Abstract: We show that the effect of non-interest income on systemic risk exposures varies with bank size and a country’s institutional setting. Non-interest income reduces large banks’ systemic risk exposures, whereas it increases that of small banks. However, exploiting heterogeneity in countries’ institutional setting, we show that the bright side of innovation by large banks (lower systemic risk exposure for diversified banks) disappears in countries with more private and asymmetric information, more corruption and in concentrated banking markets. These empirical findings provide support for Saunders and Cornett (2014) who hypothesize which institutional features make the materialization of conflicts of interest more likely.

Keywords: Systemic risk; Diversification; Innovation; Conflicts of interest; Global sample (search for similar items in EconPapers)
JEL-codes: G21 G28 L51 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

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Working Paper: Banks’ size, scope and systemic risk: What role for conflicts of interest? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:61:y:2015:i:s1:p:s3-s13

DOI: 10.1016/j.jbankfin.2014.12.024

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