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

68 Pages Posted: 2 May 2017

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass 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: April 2017

Abstract

We propose a new stock return-based methodology to measure three dimensions of banks' sectoral concentration (specialization, differentiation, financial sector exposure). Using these measures for a broad cross-section of banks and countries between 2002 and 2012, we estimate both the short- and long-run relationship between banks' sectoral concentration and banks' performance and stability. We find that bank volatility and systemic risk exposure decrease with banks' sectoral specialization and increase with banks' sectoral differentiation and financial sector exposure. These effects are significantly stronger in the long-run. Moreover, there exists important time and cross-country variation, with effects generally stronger during systemic stress periods.

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

JEL Classification: G01, G21, G28, L5

Suggested Citation

Beck, Thorsten and De Jonghe, Olivier and Mulier, Klaas, Bank Sectoral Concentration and (Systemic) Risk: Evidence from a Worldwide Sample of Banks (April 2017). CEPR Discussion Paper No. DP12009. Available at SSRN: https://ssrn.com/abstract=2961772

Thorsten Beck (Contact Author)

City University London - Sir John Cass 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

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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