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The Janus Face of bank geographic complexity

Author

Listed:
  • Iñaki Aldasoro
  • Bryan Hardy
  • Maximilian Jager

Abstract

We study the relationship between bank geographic complexity and risk using a unique dataset of 96 global bank holding companies (BHCs) over 2008-2016. From data on the affiliate network of internationally active banking entities, we construct a measure of geographic coverage and complexity for each BHC. We find that higher geographic complexity heightens banks' capacity to absorb local economic shocks, reducing their risk. However, higher geographic complexity is also associated with a higher vulnerability to global shocks and less impact of prudential regulation, increasing their risk. Geographic complexity helps more (with respect to local shocks) and hurts less (with respect to global shocks) if countries' business cycles are misaligned. Large, international regulatory reforms such as the implementation of the GSIB framework and the European Single Supervisory Mechanism reduce bank risk, but geographic complexity weakens this effect. Bank geographic complexity therefore has a Janus face, decreasing some but increasing other aspects of bank risk.

Suggested Citation

  • Iñaki Aldasoro & Bryan Hardy & Maximilian Jager, 2020. "The Janus Face of bank geographic complexity," BIS Working Papers 858, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:858
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    Cited by:

    1. Vittoria Cerasi & Stefano Montoli, 2020. "Bank resolution and multinational banks," Working Papers 447, University of Milano-Bicocca, Department of Economics, revised Jul 2020.
    2. Berger, Allen & Gao, Haoyu & Li, Xinming & Peng, Yuchao & Xie, Bingyuan, 2025. "The Perils of Speed: Branch Expansion and Bank Performance," MPRA Paper 125305, University Library of Munich, Germany.
    3. Wang, Chao & Jia, Chenfang & Liu, Xiaoxing, 2025. "Carbon-related credit concentration and banking systemic risk due to climate transition shocks," International Review of Financial Analysis, Elsevier, vol. 105(C).
    4. Bryan Hardy & Patrick McGuire & Goetz von Peter, 2024. "International finance through the lens of BIS statistics: bank exposures and country risk," BIS Quarterly Review, Bank for International Settlements, September.
    5. Claudia M. Buch & Linda S. Goldberg, 2021. "Complexity and Riskiness of Banking Organizations: Evidence from the International Banking Research Network," Staff Reports 966, Federal Reserve Bank of New York.
    6. Simoens, Mathieu & Vander Vennet, Rudi, 2022. "Does diversification protect European banks’ market valuations in a pandemic?," Finance Research Letters, Elsevier, vol. 44(C).
    7. Ponte Marques, Aurea & Vila Martín, Diego & Salleo, Carmelo & Cappelletti, Giuseppe, 2025. "Macroprudential policy spillovers in international banking groups. Beggar-thy-neighbour and the role of internal capital markets," Journal of Banking & Finance, Elsevier, vol. 171(C).
    8. Anani, Makafui, 2024. "Geographic complexity and bank risk: Evidence from cross-border banks in Africa," Economic Systems, Elsevier, vol. 48(3).
    9. Chao Wang & Boyi Chen & Xiaoxing Liu, 2024. "Credit diversification and banking systemic risk," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 19(1), pages 59-83, January.
    10. John Caparusso & Bryan Hardy, 2022. "Bank funding: evolution, stability and the role of foreign offices," BIS Quarterly Review, Bank for International Settlements, September.
    11. Wen, Huiyu & Wang, Hui & Zhao, Danni & Gao, Haoyu, 2024. "Does high-speed rail boost local bank performance? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 641-658.
    12. Iñaki Aldasoro & John Caparusso & Yingyuan Chen, 2022. "Global banks' local presence: a new lens," BIS Quarterly Review, Bank for International Settlements, March.
    13. Avdjiev, Stefan & Jager, Maximilian, 2022. "Bank opacity - patterns and implications," CEPR Discussion Papers 17024, C.E.P.R. Discussion Papers.

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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