Size, charter value and risk in banking: an international perspective
This paper documents the relationships between bank size and measures of charter value and insolvency risk in a sample of publicly traded banks in 21 industrialized countries for the 1988-1998 period. With the exception of small U.S. bank holding companies, charter values decrease in size and insolvency risk increases in size for most banks in the countries considered. Size-related diversification benefits and/or economies of scale in intermediation are either absent or, if they exist, are more than offset by banks' higher risk taking. Furthermore, banks operating in countries with more developed financial markets exhibit lower insolvency risk, and those operating in countries with either stricter regulation on banks' permissible activities or larger share of bank assets under state ownership exhibit higher insolvency risk. Overall, our evidence is at variance with some broad implications of modern financial intermediation theory, and suggests that absent future structural changes in banking markets of developed countries, bank consolidation is likely to result in an average increase in banks' insolvency risk.
|Date of creation:||2000|
|Date of revision:|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/ifdp/order.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Philippe Aghion, Patrick Bolton & Steven Fries, 1999. "Optimal Design of Bank Bailouts: The Case of Transition Economies," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(1), pages 51-, March.
- Boyd, John H. & Prescott, Edward C., 1986.
Journal of Economic Theory,
Elsevier, vol. 38(2), pages 211-232, April.
- Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
- George J. Mailath & Loretta J. Mester, 1993.
"A positive analysis of bank closure,"
93-10/R, Federal Reserve Bank of Philadelphia.
- Rebecca Demsetz & Marc R. Saidenberg, 1999. "Looking beyond the CEO: executive compensation at banks," Staff Reports 68, Federal Reserve Bank of New York.
- Boyd, John H. & Chang, Chun & Smith, Bruce D., 2002.
"Deposit insurance: a reconsideration,"
Journal of Monetary Economics,
Elsevier, vol. 49(6), pages 1235-1260, September.
- Matutes, Carmen & Vives, Xavier, 1995.
"Imperfect Competition, Risk Taking, and Regulation in Banking,"
CEPR Discussion Papers
1177, C.E.P.R. Discussion Papers.
- Matutes, Carmen & Vives, Xavier, 2000. "Imperfect competition, risk taking, and regulation in banking," European Economic Review, Elsevier, vol. 44(1), pages 1-34, January.
- Hughes, Joseph P. & Lang, William W. & Mester, Loretta J. & Moon, Choon-Geol, 1999.
"The dollars and sense of bank consolidation,"
Journal of Banking & Finance,
Elsevier, vol. 23(2-4), pages 291-324, February.
- Joseph P. Hughes & William W. Lang & Loretta J. Mester, 1998. "The dollars and sense of bank consolidation," Working Papers 98-10, Federal Reserve Bank of Philadelphia.
- Joseph P. Hughes & William Lang & Loretta J. Mester & Choon-Geol Moon, 1998. "The Dollars and Sense of Bank Consolidation," Center for Financial Institutions Working Papers 99-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Rebecca Demsetz & Philip E. Strahan, 1995. "Historical patterns and recent changes in the relationship between bank holding company size and risk," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 13-26.
- Demsetz, Rebecca S & Strahan, Philip E, 1997. "Diversification, Size, and Risk at Bank Holding Companies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 300-313, August.
- Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002.
"Government Ownership of Banks,"
Journal of Finance,
American Finance Association, vol. 57(1), pages 265-301, 02.
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2001. "Government Ownership of Banks," Working Paper Series rwp01-016, Harvard University, John F. Kennedy School of Government.
- Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer, 2000. "Government Ownership of Banks," Harvard Institute of Economic Research Working Papers 1890, Harvard - Institute of Economic Research.
- Rafael La Porta & Florencio Lopezde-Silanes & Andrei Shleifer, 2000. "Government Ownership of Banks," NBER Working Papers 7620, National Bureau of Economic Research, Inc.
- Marshall, David A. & Prescott, Edward Simpson, 2001.
"Bank capital regulation with and without state-contingent penalties,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 54(1), pages 139-184, June.
- David A. Marshall & Edward Simpson Prescott, 2000. "Bank capital regulation with and without state-contingent penalties," Working Paper Series WP-00-10, Federal Reserve Bank of Chicago.
- Krasa, Stefan & Villamil, Anne P, 1992. "A Theory of Optimal Bank Size," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 725-49, October.
- Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, March.
- Sleet, Christopher & Smith, Bruce D, 2000.
"Deposit Insurance and Lender-of-Last-Resort Functions,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 32(3), pages 518-75, August.
- Christopher Sleet & Bruce D. Smith, 2000. "Deposit insurance and lender-of-last-resort functions," Proceedings, Federal Reserve Bank of Cleveland, pages 518-579.
- Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
- Barth, James R. & Caprio, Gerard & Levine, Ross, 2000. "Banking systems around the globe : do regulation and ownership affect the performance and stability?," Policy Research Working Paper Series 2325, The World Bank.
- Kareken, John H & Wallace, Neil, 1978. "Deposit Insurance and Bank Regulation: A Partial-Equilibrium Exposition," The Journal of Business, University of Chicago Press, vol. 51(3), pages 413-38, July.
- Rebecca Demsetz & Marc R. Saidenberg & Philip E. Strahan, 1996. "Banks with something to lose: the disciplinary role of franchise value," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 1-14.
- Boyd, John H. & Runkle, David E., 1993. "Size and performance of banking firms : Testing the predictions of theory," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 47-67, February.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:689. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio)
If references are entirely missing, you can add them using this form.