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"Too big to fail" or "Too non-traditional to fail"?: The determinants of banks' systemic importance

Author

Listed:
  • Moore, Kyle
  • Zhou, Chen

Abstract

This paper empirically analyzes the determinants of banks' systemic importance. In constructing a measure on the systemic importance of financial institutions we find that size is a leading determinant. This confirms the usual "Too big to fail'' argument. Nevertheless, banks with size above a sufficiently high level have equal systemic importance. In addition to size, we find that the extent to which banks engage in non-traditional banking activities is also positively related to banks' systemic importance. Therefore, in addition to ``Too big to fail", systemically important financial institutions can also be identified by a "Too non-traditional to fail" principle.

Suggested Citation

  • Moore, Kyle & Zhou, Chen, 2013. ""Too big to fail" or "Too non-traditional to fail"?: The determinants of banks' systemic importance," MPRA Paper 45589, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:45589
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    File URL: https://mpra.ub.uni-muenchen.de/45589/1/MPRA_paper_45589.pdf
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    References listed on IDEAS

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    1. Philipp Hartmann & Stefan Straetmans & Casper de Vries, 2007. "Banking System Stability. A Cross-Atlantic Perspective," NBER Chapters,in: The Risks of Financial Institutions, pages 133-192 National Bureau of Economic Research, Inc.
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    3. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    4. repec:fip:fedhpr:y:2010:i:may:p:65-71 is not listed on IDEAS
    5. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2010. "Measuring systemic risk," Working Paper 1002, Federal Reserve Bank of Cleveland.
    6. De Jonghe, Olivier, 2010. "Back to the basics in banking? A micro-analysis of banking system stability," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 387-417, July.
    7. Chen Zhou, 2010. "Are Banks Too Big to Fail? Measuring Systemic Importance of Financial Institutions," International Journal of Central Banking, International Journal of Central Banking, vol. 6(34), pages 205-250, December.
    8. Hartmann, Philipp & Straetmans, Stefan & de Vries, Casper, 2005. "Banking system stability: a cross-Atlantic perspective," Working Paper Series 527, European Central Bank.
    9. 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, August.
    10. Beverly Hirtle & Jose A. Lopez, 1999. "Supervisory information and the frequency of bank examinations," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 1-20.
    11. repec:sae:ecolab:v:16:y:2006:i:2:p:1-2 is not listed on IDEAS
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    Cited by:

    1. repec:gam:jjrfmx:v:10:y:2017:i:2:p:8-:d:95645 is not listed on IDEAS
    2. Masciantonio, Sergio, 2013. "Identifying, ranking and tracking systemically important financial institutions (SIFIs), from a global, EU and Eurozone perspective," MPRA Paper 46788, University Library of Munich, Germany.
    3. Xiao Qin & Chen Zhou, 2013. "Systemic Risk Allocation for Systems with A Small Number of Banks," DNB Working Papers 378, Netherlands Central Bank, Research Department.
    4. Gastón Andrés Giordana & Ingmar Schumacher, 2017. "An Empirical Study on the Impact of Basel III Standards on Banks’ Default Risk: The Case of Luxembourg," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 10(2), pages 1-21, April.

    More about this item

    Keywords

    Too-big-to-fail; systemic importance; systemic risk; non-traditional banking; extreme value theory;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G2 - Financial Economics - - Financial Institutions and Services
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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