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Big Banks, Idiosyncratic Volatility, and Systemic Risk


  • Ricardo T. Fernholz
  • Christoffer Koch


Starting in the 1990s, US bank assets grew more concentrated among a few large institutions. We explore the changing role of idiosyncratic volatility as a shaping force of the bank asset power law distribution. Our results reveal that idiosyncratic asset volatilities for bank-holding companies declined since the 1990s. To the extent that firm-specific shocks can have significant macroeconomic consequences, this result implies that even as one obvious source of aggregate risk and contagion--bank asset concentration--has increased, another important source--idiosyncratic volatility--has diminished.

Suggested Citation

  • Ricardo T. Fernholz & Christoffer Koch, 2017. "Big Banks, Idiosyncratic Volatility, and Systemic Risk," American Economic Review, American Economic Association, vol. 107(5), pages 603-607, May.
  • Handle: RePEc:aea:aecrev:v:107:y:2017:i:5:p:603-07
    Note: DOI: 10.1257/aer.p20171007

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    Cited by:

    1. Sapci, Ayse & Miles, Bradley, 2019. "Bank size, returns to scale, and cost efficiency," Journal of Economics and Business, Elsevier, vol. 105(C).
    2. Franziska Bremus & Melina Ludolph, 2019. "The Nexus between Loan Portfolio Size and Volatility: Does Banking Regulation Matter?," Discussion Papers of DIW Berlin 1822, DIW Berlin, German Institute for Economic Research.
    3. Tomoo Kikuchi & Kazuo Nishimura & John Stachurski & Junnan Zhang, 2019. "Coase Meets Bellman: Dynamic Programming for Production Networks," Papers 1908.10557,, revised Dec 2020.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms


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