Bank Sectoral Concentration and Risk: Evidence from a Worldwide Sample of Banks

91 Pages Posted: 28 Apr 2017 Last revised: 6 Jun 2021

See all articles by Thorsten Beck

Thorsten Beck

City University London - The Business School; Tilburg University - European Banking Center, CentER

Olivier De Jonghe

Tilburg University - Department of Finance; National Bank of Belgium - Research Department; Tilburg University - European Banking Center

Klaas Mulier

Ghent University - Faculty of Economics and Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: May 29, 2021

Abstract

We propose a novel, stock-return based, technique to measure three aspects of banks' sectoral concentration that feature prominently in episodes of intensified (systemic) bank risk: specialization (capturing high exposures), differentiation (capturing deviation from peer banks), and financial sector exposure (capturing direct connectedness) and show external validity for these measures. We find that both individual and systemic bank risk decrease with specialization. Differentiation is particularly and positively related to individual bank risk, whereas direct connectedness of banks is
particularly and positively related to systemic bank risk. These findings inform the theoretical and policy debate on the relationship between sectoral concentration and banks' stability.

Keywords: bank concentration, sectoral specialization, differentiation, bank risk, systemic stability, factor model

JEL Classification: G01, G21, G28, L5

Suggested Citation

Beck, Thorsten and De Jonghe, Olivier and De Jonghe, Olivier and Mulier, Klaas, Bank Sectoral Concentration and Risk: Evidence from a Worldwide Sample of Banks (May 29, 2021). Available at SSRN: https://ssrn.com/abstract=2959273 or http://dx.doi.org/10.2139/ssrn.2959273

Thorsten Beck

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Olivier De Jonghe (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
0031-13-466.2650 (Phone)

National Bank of Belgium - Research Department ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

Tilburg University - European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Klaas Mulier

Ghent University - Faculty of Economics and Business Administration ( email )

Ghent, B-9000
Belgium

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