Historical Patterns and Recent Changes in the Relationship between Bank Holding Company Size and Risk

14 Pages Posted: 13 Nov 2007

See all articles by Rebecca S. Demsetz

Rebecca S. Demsetz

Data For Decisions LLC

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Abstract

What is the relationship between a bank holding company's size and the risk it takes? The authors find that although the level of risk at large and small bank holding companies has not differed significantly, important distinctions exist in the nature of that risk. Historically, large companies' diversification advantages were offset by lower capital ratios and the pursuit of risk-enhancing activities. More recently, however, differences between the capital ratios and activities of large and small companies have narrowed. As a result, an inverse relationship between risk and bank holding company size has begun to emerge.

Keywords: risk, bank size, diversification, capital ratio

JEL Classification: G21

Suggested Citation

Demsetz, Rebecca S. and Strahan, Philip E., Historical Patterns and Recent Changes in the Relationship between Bank Holding Company Size and Risk. Economic Policy Review, Vol. 1, No. 2, July 1995, Available at SSRN: https://ssrn.com/abstract=1029613

Rebecca S. Demsetz (Contact Author)

Data For Decisions LLC ( email )

11 Winthrop Circle
Weston, MA 02493
United States

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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