'Too Big to Fail' or 'Too Non-Traditional to Fail'?: The Determinants of Banks' Systemic Importance

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.

Number of Pages in PDF File: 34

Keywords: too big to fail, too connected to fail, determinants of systemic importance, systemically important financial institution, systemic risk, systemic importance, multivariate extreme value theory

JEL Classification: G01, G21, G28

working papers series