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On The Importance Of Traditional Lending Activity For Banking Systems Stability

Author

Listed:
  • STEFANO ZEDDA

    (University of Cagliari, Via S.Ignazio, 17 - 09123, Cagliari, Italy)

  • MICHELE PATANÉ

    (University of Siena, Italy)

  • LUANA MIGGIANO

    (University of Siena, Italy)

Abstract

In this paper, we analyzed the role of banks’ traditional lending on systemic stability. Firstly, we quantified the effect of correlation among banks’ results on systemic risk through Monte Carlo simulation. Secondly, we verified how traditional lending affects banks’ results correlation. Finally, combining the two effects, we assessed the importance of bank traditional lending on financial stability. Our results suggest that banks devoting a higher share of their assets to traditional lending show a lower correlation of their comprehensive income, thus having a mitigation effect on systemic stability.

Suggested Citation

  • Stefano Zedda & Michele Patané & Luana Miggiano, 2020. "On The Importance Of Traditional Lending Activity For Banking Systems Stability," Journal of Financial Management, Markets and Institutions (JFMMI), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-19, December.
    • Handle: RePEc:wsi:jfmmix:v:08:y:2020:i:02:n:s2282717x2050005x
    DOI: 10.1142/S2282717X2050005X
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