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Diversification des institutions financières et risque systémique : la prise en compte des risques extrêmes

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  • Noëlle Duport
  • Éric Fina
  • Daniel Goyeau

Abstract

This article examines the effects of diversification on systemic risk, and its implications for regulatory capital from a macro-prudential perspective. The systemic risk studied is that resulting from a common exposure of banking institutions : when the latter diversify their activities, the compositions of their assets converge, making them therefore susceptible to the same shocks. In this context, the contribution of this article is threefold : firstly, it analyzes the evolution of capital that would compensate for the increased risk of a generalized crisis ; secondly, it assumes that the return on banking asset follows a Gumbel distribution, allowing for better modeling of extreme risks (especially on the left tail) than does a gaussian distribution ; thirdly, it analyzes arbitrage in terms of regulatory capital for individual risk vs. systemic risk resulting from diversification. We point out that, in this context, the regulator cannot manage individual and systemic risks with a single instrument. Indeed, diversification allows a bank to reduce its individual risk and therefore, from a micro-prudential perspective, to reduce its level of regulatory capital. However, as this strategy leads to an increase in systemic risk, under the macro-prudential regulation, it should hold more. The prudential micro and macro objectives may thus diverge, and thus require two instruments of regulation.

Suggested Citation

  • Noëlle Duport & Éric Fina & Daniel Goyeau, 2018. "Diversification des institutions financières et risque systémique : la prise en compte des risques extrêmes," Revue économique, Presses de Sciences-Po, vol. 69(3), pages 477-504.
  • Handle: RePEc:cai:recosp:reco_693_0477
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    Citations

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    Cited by:

    1. Eric Fina Kamani, 2020. "The effect of the trading activities of banks on systemic risk: does banking industry concentration matter?," Economics Bulletin, AccessEcon, vol. 40(1), pages 542-555.
    2. Claudiu Albulescu, 2020. "Bank financial stability, bank valuation and international oil prices: Evidence from listed Russian public banks," Papers 2004.12791, arXiv.org.
    3. Fina Kamani, Eric, 2019. "The effect of non-traditional banking activities on systemic risk: Does bank size matter?," Finance Research Letters, Elsevier, vol. 30(C), pages 297-305.
    4. Claudiu Tiberiu Albulescu, 2022. "Bank Financial Stability and International Oil Prices: Evidence from Listed Russian Public Banks," Eastern European Economics, Taylor & Francis Journals, vol. 60(3), pages 217-246, May.

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