Bank Size and Systemic Risk

Forthcoming in European Financial Management.

35 Pages Posted: 1 Jun 2010 Last revised: 11 Feb 2011

See all articles by Amelia Pais

Amelia Pais

Massey University - Department of Commerce

Philip A. Stork

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Date Written: February 8, 2011

Abstract

The global financial crisis that started in mid-2007 illustrates the relevance of systemic risk. One key driver of the systemic instability that materialized in the crisis was the elevated level of stress in large banks. We use EVT to analyse the effect of size on banks’ univariate and systemic risk across ten countries as well as across the EU. Our findings show that size has little impact on banks’ univariate risk (as measured by VaR), but that large banks have significantly higher systemic risk. Furthermore, systemic risk has significantly increased for banks of all sizes since the beginning of the crisis.

Keywords: systemic risk, banks, Extreme Value Theory, too big to fail

JEL Classification: C14, G01, G15, G21

Suggested Citation

Pais, Amelia and Stork, Philip A., Bank Size and Systemic Risk (February 8, 2011). Forthcoming in European Financial Management., Available at SSRN: https://ssrn.com/abstract=1618662

Amelia Pais

Massey University - Department of Commerce ( email )

Private Bag 102-904
Auckland
New Zealand

Philip A. Stork (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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