Bank Size and Systemic Risk

Staff Discussion Notes, May 8, 2014

Source details

Title: Bank Size and Systemic Risk
Authors: Luc Laeven, Lev Ratnovski, Hui Tong
Date: May 8, 2014
Type: Staff Discussion Notes
Summary statement: The SDN documents the evolution of bank size and activities over the past 20 years; discusses whether this evolution can be explained by economies of scale or “too big to fail” subsidies; presents evidence on the extent to which bank size and market-based activities contribute to systemic risk; and concludes with policy messages in the area of capital regulation and activity restrictions to reduce the systemic risk posed by large banks.
Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management.

Documents the evolution of bank size and activities over the past 20 years.
Investigates whether growth in bank size and activity composition is explained by:
- economies of scale, or
- “too big to fail” subsidies.

Presents evidence on the extent to which:
- bank size contributes to systemic risk, and
- market-based activities contribute to systemic risk.
Notes that the analysis complements earlier Fund work, including SDN 13/04 and the recent GFSR chapter on “too big to fail” subsidies.

Concludes with policy messages aimed at reducing systemic risk posed by large banks, focusing on:
- capital regulation, and
- activity restrictions.

Annex 1. Economies of Scale and Scope in Banks
- Annex 1. Economies of Scale and Scope in Banks (Markdown version)
- Annex 1. Economies of Scale and Scope in Banks (PDF)