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Historical patterns and recent changes in the relationship between bank holding company size and risk

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  • Rebecca S. Demsetz
  • Philip E. Strahan
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    Abstract

    What is the relationship between a bank holding company's size and the risk it takes? The authors find that although the level of risk at large and small bank holding companies has not differed significantly, important distinctions exist in the nature of that risk. Historically, large companies' diversification advantages were offset by lower capital ratios and the pursuit of risk-enhancing activities. More recently, however, differences between the capital ratios and activities of large and small companies have narrowed. As a result, an inverse relationship between risk and bank holding company size has begun to emerge.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

    Volume (Year): (1995)
    Issue (Month): Jul ()
    Pages: 13-26

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    Handle: RePEc:fip:fednep:y:1995:i:jul:p:13-26:n:v.1no.2

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    Related research

    Keywords: Bank capital ; Bank holding companies ; Bank size;

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    Cited by:
    1. Victoria Geyfman, 2005. "Banks in the securities business: market-based risk implications of section 20 subsidiaries," Working Papers 05-17, Federal Reserve Bank of Philadelphia.
    2. Beverly J. Hirtle, 1996. "Derivatives, Portfolio Composition and Bank Holding Company Interest Rate Risk Exposure," Center for Financial Institutions Working Papers 96-43, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Mark Carlson & Hui Shan & Missaka Warusawitharana, 2011. "Capital ratios and bank lending: a matched bank approach," Finance and Economics Discussion Series 2011-34, Board of Governors of the Federal Reserve System (U.S.).
    4. George Alessandria & Horag Choi, 2005. "Do sunk costs of exporting matter for net export dynamics?," Working Papers 05-20, Federal Reserve Bank of Philadelphia.
    5. Elyasiani, Elyas & Mansur, Iqbal & Pagano, Michael S., 2007. "Convergence and risk-return linkages across financial service firms," Journal of Banking & Finance, Elsevier, vol. 31(4), pages 1167-1190, April.
    6. Gianni De Nicolo, 2000. "Size, charter value and risk in banking: an international perspective," International Finance Discussion Papers 689, Board of Governors of the Federal Reserve System (U.S.).
    7. Mark Carlson, 2001. "Are branch banks better survivors? Evidence from the Depression era," Finance and Economics Discussion Series 2001-51, Board of Governors of the Federal Reserve System (U.S.).

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