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Systemic Risk and Financial Consolidation: Are they Related?

Author/Editor: De Nicoló, Gianni | Kwast, Myron L.
Authorized for Distribution: March 1, 2002
Electronic Access: Free Full Text (PDF file size is 1,230KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We argue that firm interdependencies, as measured by correlations of stock returns, provide an indicator of systemic risk potential. We find a positive trend in stock return correlations net of diversification effects for a sample of U.S. Large and Complex Banking Organizations over 1988-99. This finding suggests that the systemic risk potential in the financial sector may have increased. In addition, we find a positive consolidation elasticity of correlations. However, such elasticity exhibits substantial time variation and likely declined in the latter part of the decade. Thus, factors other than consolidation have also been responsible for the upward trend in return correlations.
 
Series: Working Paper No. 02/55
Subject(s): Financial sector | Banking systems | Financial risk | Stock markets
Author's keyword(s): Systemic risk | bank consolidation
 
English  
    Published:   March 1, 2002        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA0552002   Pages:   26
    Price:   US$15.00
       
     
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