Bank Size and Systemic Risk
Forthcoming in European Financial Management.
35 Pages Posted: 1 Jun 2010 Last revised: 11 Feb 2011
Date Written: February 8, 2011
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: Suggested Citation