Bank Sectoral Concentration and (Systemic) Risk: Evidence from a Worldwide Sample of Banks

65 Pages Posted: 28 Apr 2017 Last revised: 6 Jun 2017

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Olivier De Jonghe

Tilburg University - Department of Finance; Tilburg University - European Banking Center

Klaas Mulier

Ghent University-Universiteit Gent - Faculty of Economics and Business Administration; National Bank of Belgium - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: April 27, 2017

Abstract

We propose a new stock return-based methodology to measure three dimensions of banks' sectoral concentration (specialization, differentiation, financial sector exposure). Using these measures for a broad cross-section of banks and countries between 2002 and 2012, we estimate both the short- and long-run relationship between banks' sectoral concentration and banks' performance and stability. We find that bank volatility and systemic risk exposure decrease with banks' sectoral specialization and increase with banks' sectoral differentiation and financial sector exposure. These effects are significantly stronger in the long-run. Moreover, there exists important time and cross-country variation, with effects generally stronger during systemic stress periods.

Keywords: bank concentration, sectoral specialization, differentiation, bank risk, systemic stability, factor model

JEL Classification: G01, G21, G28, L5

Suggested Citation

Beck, Thorsten and De Jonghe, Olivier and Mulier, Klaas, Bank Sectoral Concentration and (Systemic) Risk: Evidence from a Worldwide Sample of Banks (April 27, 2017). Available at SSRN: https://ssrn.com/abstract=2959273 or http://dx.doi.org/10.2139/ssrn.2959273

Thorsten Beck

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Olivier De Jonghe (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
0031-13-466.2650 (Phone)

Tilburg University - European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Klaas Mulier

Ghent University-Universiteit Gent - Faculty of Economics and Business Administration ( email )

Ghent, B-9000
Belgium

National Bank of Belgium - Research Department ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

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