Economics at your fingertips  

Bank Size, Risk Diversification and Money Markets

Hugo Rodriguez Mendizabal ()

No 785, Working Papers from Barcelona Graduate School of Economics

Abstract: This paper presents a theoretical model based on risk diversification to rationalize the observed dichotomy in the federal funds market by which small banks are net providers of funds while large banks become net purchasers. As larger banks are more diversified they can raise a larger proportion of funds as equity and provide more loans. To finance these loans, they will need to obtain funds in the wholesale money market. In contrast, smaller banks will be less diversified and will find it harder to raise equity which means producing a lower amount of loans and supplying the extra funds in the wholesale money market. The model also produces a set of testable predictions about the performance of large and small banks that are in line with data for the US.

Keywords: bank size; diversification; money market; bank solvency (search for similar items in EconPapers)
JEL-codes: E4 E5 G21 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

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:

Access Statistics for this paper

More papers in Working Papers from Barcelona Graduate School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().

Page updated 2020-07-08
Handle: RePEc:bge:wpaper:785