Bank Size and Systemic Risk

34 Pages Posted: 19 May 2014

See all articles by Luc Laeven

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Lev Ratnovski

International Monetary Fund; European Central Bank, Financial Research Division

Hui Tong

International Monetary Fund (IMF)

Date Written: May 15, 2014

Abstract

Large banks are riskier, and create more systemic risk, when they have lower capital and less-stable funding. Large banks create more systemic risk (but are not individually riskier) when they engage more in market-based activities or are more organizationally complex. Traditional bank regulation, which focuses on individual bank risk, may be insufficient for large banks. Additional regulation, based on systemic risk considerations, is needed to deal with the externalities of distress of large banks. This may include capital surcharges on large banks and measures to reduce their involvement in market-based activities and their organizational complexity.

Suggested Citation

Laeven, Luc A. and Ratnovski, Lev and Tong, Hui, Bank Size and Systemic Risk (May 15, 2014). Available at SSRN: https://ssrn.com/abstract=2437729 or http://dx.doi.org/10.2139/ssrn.2437729

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Lev Ratnovski (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://ratnovski.googlepages.com

European Central Bank, Financial Research Division

Germany

Hui Tong

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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