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Carrying the (Paper) Burden: A Portfolio View of Systemic Risk and Optimal Bank Size

J. Bos, Martien Lamers () and Victoria Purice ()

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: We examine the relationship between bank size and financial stability by viewing the supervisor of a banking system as an ‘investor’ holding a portfolio of banks. Based on this view, we investigate the role of large banks in determining the systemic risk in this portfolio. Our results, based on book data of U.S. banks and Bank Holding Companies, indicate that the largest banks are consistently overrepresented in the current portfolio compared with the minimum variance portfolio. Moreover, the risk level of the portfolio can be reduced by limiting concentration without sacrificing returns.

Keywords: Systemic risk; Modern Portfolio Theory; U.S. banking (search for similar items in EconPapers)
Pages: 85 pages
Date: 2014-05
New Economics Papers: this item is included in nep-ban, nep-com and nep-rmg
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Working Paper: Carrying the (paper) burden: A portfolio view of systemic risk and optimal bank size (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:14/882

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