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"Too big to fail" or "Too non-traditional to fail"?: The determinants of banks' systemic importance

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  • Moore, Kyle
  • Zhou, Chen

Abstract

This paper empirically analyzes the determinants of banks' systemic importance. In constructing a measure on the systemic importance of financial institutions we find that size is a leading determinant. This confirms the usual "Too big to fail'' argument. Nevertheless, banks with size above a sufficiently high level have equal systemic importance. In addition to size, we find that the extent to which banks engage in non-traditional banking activities is also positively related to banks' systemic importance. Therefore, in addition to ``Too big to fail", systemically important financial institutions can also be identified by a "Too non-traditional to fail" principle.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 45589.

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Date of creation: 23 Feb 2013
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Handle: RePEc:pra:mprapa:45589

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Keywords: Too-big-to-fail; systemic importance; systemic risk; non-traditional banking; extreme value theory;

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References

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  1. Olivier De Jonghe, 2009. "Back to the basics in banking ? A micro-analysis of banking system stability," Working Paper Research 167, National Bank of Belgium.
  2. Viral V. Acharya & Douglas Gale & Tanju Yorulmazer, 2010. "Rollover Risk and Market Freezes," NBER Working Papers 15674, National Bureau of Economic Research, Inc.
  3. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2010. "Measuring systemic risk," Working Paper 1002, Federal Reserve Bank of Cleveland.
  4. Hartmann, Philipp & Straetmans, Stefan & de Vries, Casper, 2005. "Banking system stability: a cross-Atlantic perspective," Working Paper Series 0527, European Central Bank.
  5. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
  6. repec:sae:ecolab:v:16:y:2006:i:2:p:1-2 is not listed on IDEAS
  7. repec:fip:fedhpr:y:2010:i:may:p:65-71 is not listed on IDEAS
  8. Beverly J. Hirtle & Jose A. Lopez, 1999. "Supervisory information and the frequency of bank examinations," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 1-20.
  9. Chen Zhou, 2010. "Are Banks Too Big to Fail? Measuring Systemic Importance of Financial Institutions," International Journal of Central Banking, International Journal of Central Banking, vol. 6(34), pages 205-250, December.
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Cited by:
  1. Xiao Qin & Chen Zhou, 2013. "Systemic Risk Allocation for Systems with A Small Number of Banks," DNB Working Papers 378, Netherlands Central Bank, Research Department.
  2. Masciantonio, Sergio, 2013. "Identifying, ranking and tracking systemically important financial institutions (SIFIs), from a global, EU and Eurozone perspective," MPRA Paper 46788, University Library of Munich, Germany.

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