Are the Largest Banking Organizations Operationally More Risky?

Filippo Curti, W Frame and Atanas Mihov

No 2016, Working Papers from Federal Reserve Bank of Dallas

Abstract: This study demonstrates that, among large U.S. bank holding companies (BHCs), the largest ones are exposed to more operational risk. Specifically, they have higher operational losses per dollar of total assets, a result largely driven by the BHCs' failure to meet professional obligations to clients and/or faulty product design. Operational risk at the largest U.S. institutions is also found to: (i) be particularly persistent, (ii) have a counter-cyclical component (higher losses occur during economic downturns) and (iii) materialize through more frequent tail-risk events. We illustrate two plausible channels of BHC size that contribute to operational risk – institutional complexity and moral hazard incentives arising from “too-big-to-fail." Our findings have important implications for large banking organization performance, risk and supervision.

Keywords: Banking organizations; Size; Operational risk; Tail risk; Recessions (search for similar items in EconPapers)
JEL-codes: G20 G21 (search for similar items in EconPapers)
Pages: 50
Date: 2020-05-29
New Economics Papers: this item is included in nep-ban and nep-rmg
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Citations: View citations in EconPapers (6)

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Journal Article: Are the Largest Banking Organizations Operationally More Risky? (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:88097

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DOI: 10.24149/wp2016

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