Systemic Risk and Bank Consolidation: International Evidence

Journal of Banking and Finance, Forthcoming

Campus for Finance, 2012 WHU Koblenz

Southwestern Finance Association Annual Meeting 2012

Eastern Finance Association Annual Meeting 2012

Midwest Finance Association, Midwest Finance Association 2012 Annual Meeting

5th Financial Risks International Forum on "Systemic Risk", Institut Louis Bachelier

24th Australasian Finance and Banking Conference 2011

49 Pages Posted: 5 Jan 2012 Last revised: 20 Nov 2013

See all articles by Gregor N. F. Weiss

Gregor N. F. Weiss

University of Leipzig - Faculty of Economics and Management Science

Sascha Neumann

Ruhr Universität Bochum

Denefa Bostandzic

Heinrich Heine University Dusseldorf

Date Written: November 20, 2013

Abstract

This paper analyzes the systemic risk effects of bank mergers to test the "concentration-fragility" hypothesis. We use the marginal expected shortfall as well as the lower tail dependence between a bank's stock returns and a relevant bank sector index to capture the merger-related change in an acquirer's contribution to systemic risk. In our empirical analysis of a dataset of international domestic and cross-border mergers, we find clear evidence for a significant increase in the merging banks', the combined banks' as well as their competitors' contribution to systemic risk following mergers, thus confirming the "concentration-fragility" hypothesis.

Keywords: M&A, Banks, Consolidation, Systemic Risk, Lower Tail Dependence, Marginal Expected Shortfall, Distance to Default

JEL Classification: G34, G21, G14

Suggested Citation

Weiss, Gregor N. F. and Neumann, Sascha and Bostandzic, Denefa, Systemic Risk and Bank Consolidation: International Evidence (November 20, 2013). Journal of Banking and Finance, Forthcoming; Campus for Finance, 2012 WHU Koblenz ; Southwestern Finance Association Annual Meeting 2012; Eastern Finance Association Annual Meeting 2012; Midwest Finance Association, Midwest Finance Association 2012 Annual Meeting; 5th Financial Risks International Forum on "Systemic Risk", Institut Louis Bachelier ; 24th Australasian Finance and Banking Conference 2011. Available at SSRN: https://ssrn.com/abstract=1914352 or http://dx.doi.org/10.2139/ssrn.1914352

Gregor N. F. Weiss (Contact Author)

University of Leipzig - Faculty of Economics and Management Science ( email )

Grimmaische Str. 12
Leipzig, 04109
Germany
+49 341 97 33821 (Phone)
+49 341 97 33829 (Fax)

HOME PAGE: http://www.wifa.uni-leipzig.de/nfdl

Sascha Neumann

Ruhr Universität Bochum ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

Denefa Bostandzic

Heinrich Heine University Dusseldorf ( email )

Universitätsstrasse 1
Duesseldorf, DE NRW 40225
Germany

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