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Discussion Paper Details

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Title: Bank sectoral concentration and (systemic) risk: Evidence from a worldwide sample of banks

Author(s): Thorsten Beck, Olivier De Jonghe and Klaas Mulier

Publication Date: April 2017

Keyword(s): bank concentration, bank risk, differentiation, factor model, sectoral specialization and systemic stability

Programme Area(s): Financial Economics

Abstract: We propose a new stock return-based methodology to measure three dimensions of banks' sectoral concentration (specialization, differentiation,, financial sector exposure). Using these measures for a broad cross-section of banks and countries between 2002 and 2012, we estimate both the short- and long-run relationship between banks' sectoral concentration and banks' performance and stability. We find that bank volatility and systemic risk exposure decrease with banks' sectoral specialization and increase with banks' sectoral differentiation and financial sector exposure. These effects are significantly stronger in the long-run. Moreover, there exists important time and cross- country variation, with effects generally stronger during systemic stress periods.

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Bibliographic Reference

Beck, T, De Jonghe, O and Mulier, K. 2017. 'Bank sectoral concentration and (systemic) risk: Evidence from a worldwide sample of banks'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12009