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Identifying systemically important financial institutions: size and other determinants

  • Kyle Moore
  • Chen Zhou

This paper analyzes the conditions under which a financial institution is systemically important. Measuring the level of systemic importance of financial institutions, we find that size is a leading determinant confirming the usual "Too Big To Fail" argument. Nevertheless, the relation is non-linear during the recent global financial crisis. Moreover, since 2003, other determinants of systemic importance emerge. For example, decisions made by financial institutions on their choice of asset holdings, methods of funding, and sources of income have had a significant effect on the level of systemic importance during the global financial crises starting in 2008. These findings help to identify systemically important financial institutions by examining their relevant banking activities and to further design macro-prudential regulation towards reducing the systemic risk in the financial system.

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File URL: http://www.dnb.nl/en/binaries/Working%20Paper%20347_tcm47-275648.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 347.

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Date of creation: Jul 2012
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Handle: RePEc:dnb:dnbwpp:347
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Web page: http://www.dnb.nl/en/

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  1. Viral V. Acharya & Douglas Gale & Tanju Yorulmazer, 2011. "Rollover Risk and Market Freezes," Journal of Finance, American Finance Association, vol. 66(4), pages 1177-1209, 08.
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  7. Behr, Andreas & Kamp, Andreas & Memmel, Christoph & Pfingsten, Andreas, 2007. "Diversification and the banks' risk-return-characteristics: evidence from loan portfolios of German banks," Discussion Paper Series 2: Banking and Financial Studies 2007,05, Deutsche Bundesbank, Research Centre.
  8. Dennis Jansen & Casper de Vries, 1988. "On the frequency of large stock returns: putting booms and busts into perspective," Working Papers 1989-006, Federal Reserve Bank of St. Louis.
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  12. Chen Zhou, 2009. "Are banks too big to fail?," DNB Working Papers 232, Netherlands Central Bank, Research Department.
  13. Acharya, Viral V., 2009. "A theory of systemic risk and design of prudential bank regulation," Journal of Financial Stability, Elsevier, vol. 5(3), pages 224-255, September.
  14. Charles Goodhart & Miguel Segoviano, 2009. "Banking Stability Measures," FMG Discussion Papers dp627, Financial Markets Group.
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