Haste Makes Waste: Banking Organization Growth and Operational Risk

54 Pages Posted: 19 Aug 2020

See all articles by W. Scott Frame

W. Scott Frame

Structured Finance Association

Ping McLemore

Federal Reserve Banks - Quantitative Supervision & Research

Atanas Mihov

University of Kansas - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August, 2020

Abstract

This study shows that banking organization growth is associated with higher operational losses per dollar of total assets and incidence of tail risks. Event studies using M&A activity and instrumental variable regressions provide consistent evidence. The relationship between banking organization growth and operational risk varies by loss event types and balance sheet categories. We demonstrate that higher growth predicts worse operational risk realizations during the global financial crisis. These findings have implications for bank performance, risk management and supervision in a continually consolidating banking industry.

Keywords: Banking organizations, Operational risk, Mergers &, acquisitions, Growth

JEL Classification: G20, G21

Suggested Citation

Frame, W. Scott and McLemore, Ping and Mihov, Atanas, Haste Makes Waste: Banking Organization Growth and Operational Risk (August, 2020). FRB of Dallas Working Paper No. 2023, Available at SSRN: https://ssrn.com/abstract=3676668 or http://dx.doi.org/10.24149/wp2023

W. Scott Frame (Contact Author)

Structured Finance Association ( email )

1776 I Street NW
#501
Washington, DC 20006
United States

Ping McLemore

Federal Reserve Banks - Quantitative Supervision & Research ( email )

United States

Atanas Mihov

University of Kansas - School of Business ( email )

1654 Naismith Dr
Lawrence, KS 66045
United States

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