Diversification and bank stability

Shuo Liang; Fernando Moreira; Joosung Lee

doi:10.1016/j.econlet.2020.109312

Diversification and bank stability

Shuo Liang, Fernando Moreira, Joosung Lee

Research output: Contribution to journal › Article › peer-review

Abstract

This paper tests a theory in the literature regarding the role of diversification in bank systemic risk and investigates whether this effect is different for bank standalone risk. We innovatively construct a country-level diversification measure to capture the risk distribution among banks. Based on a large dataset consisting of 1,346 international publicly listed banks from 49 countries from 1998 to 2018, our results confirm existing theoretical conclusions that higher diversification leads to more systemic risk and less bank standalone risk.

Original language	English
Article number	109312
Journal	Economics Letters
Volume	193
Early online date	13 Jun 2020
DOIs	https://doi.org/10.1016/j.econlet.2020.109312
Publication status	E-pub ahead of print - 13 Jun 2020

Keywords / Materials (for Non-textual outputs)

country-level diversification
idiosyncratic risk
systemic risk

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10.1016/j.econlet.2020.109312

LiangEtalEL2020DiversificationAndBankStabilityAccepted author manuscript, 271 KBLicence: Creative Commons: Attribution-NonCommercial-NoDerivatives (CC BY-NC-ND)

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title = "Diversification and bank stability",

abstract = "This paper tests a theory in the literature regarding the role of diversification in bank systemic risk and investigates whether this effect is different for bank standalone risk. We innovatively construct a country-level diversification measure to capture the risk distribution among banks. Based on a large dataset consisting of 1,346 international publicly listed banks from 49 countries from 1998 to 2018, our results confirm existing theoretical conclusions that higher diversification leads to more systemic risk and less bank standalone risk.",

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AU - Moreira, Fernando

AU - Lee, Joosung

PY - 2020/6/13

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N2 - This paper tests a theory in the literature regarding the role of diversification in bank systemic risk and investigates whether this effect is different for bank standalone risk. We innovatively construct a country-level diversification measure to capture the risk distribution among banks. Based on a large dataset consisting of 1,346 international publicly listed banks from 49 countries from 1998 to 2018, our results confirm existing theoretical conclusions that higher diversification leads to more systemic risk and less bank standalone risk.

AB - This paper tests a theory in the literature regarding the role of diversification in bank systemic risk and investigates whether this effect is different for bank standalone risk. We innovatively construct a country-level diversification measure to capture the risk distribution among banks. Based on a large dataset consisting of 1,346 international publicly listed banks from 49 countries from 1998 to 2018, our results confirm existing theoretical conclusions that higher diversification leads to more systemic risk and less bank standalone risk.

KW - country-level diversification

KW - idiosyncratic risk

KW - systemic risk

U2 - 10.1016/j.econlet.2020.109312

DO - 10.1016/j.econlet.2020.109312

M3 - Article

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VL - 193

JO - Economics Letters

JF - Economics Letters

M1 - 109312

ER -

Diversification and bank stability

Abstract

Keywords / Materials (for Non-textual outputs)

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