The Complexity of Bank Holding Companies: A Topological Approach

89 Pages Posted: 27 Mar 2020

See all articles by Mark D. Flood

Mark D. Flood

R. H. Smith School of Business, U. of Maryland

Dror Y. Kenett

Financial Industry Regulatory Authority (FINRA); Johns Hopkins University

Robin L. Lumsdaine

American University - Department of Finance and Real Estate; Erasmus University Rotterdam (EUR) - Department of Econometrics; National Bureau of Economic Research (NBER); Tinbergen Institute

Jonathan Simon

University of Iowa

Multiple version iconThere are 2 versions of this paper

Date Written: March 2, 2020

Abstract

We develop metrics to assess the complexity of a bank holding company (BHC), based on its ownership structure. Large BHCs have intricate ownership hierarchies involving hundreds or even thousands of legal entities that may contribute to increased operational risk and greater opacity. Our measures are mathematically grounded, intuitive, and easy to implement. They may be particularly useful in the context of resolution, where regulators often face significant time pressure and coordination challenges. We use regulatory filing data from the Federal Reserve to validate the measures, demonstrating that they provide a useful complement to balance sheet information in assessing BHC complexity. Notably, the proposed measures are highly correlated with existing complexity indicators that are not based on organizational structure and are less correlated with size than these existing complexity measures. We show that the proposed measures provide additional explanatory power for the regulatory indicators, even after controlling for size.

Keywords: Orderly Resolution, Supervisory Coordination, Opacity, Graph Quotient, Edge Contraction, Y-15

JEL Classification: G21, G28, G33, C81

Suggested Citation

Flood, Mark D. and Kenett, Dror Y. and Lumsdaine, Robin L. and Simon, Jonathan, The Complexity of Bank Holding Companies: A Topological Approach (March 2, 2020). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3547487

Mark D. Flood

R. H. Smith School of Business, U. of Maryland ( email )

College Park
College Park, MD 20742
United States

Dror Y. Kenett

Financial Industry Regulatory Authority (FINRA) ( email )

Washington, DC
United States

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Robin L. Lumsdaine (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Jonathan Simon

University of Iowa ( email )

341 Schaeffer Hall
Iowa City, IA 52242-1097
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
46
Abstract Views
273
PlumX Metrics