Survival of the Biggest: Large Banks and Crises since 1870

58 Pages Posted: 19 Aug 2022

See all articles by Matthew Baron

Matthew Baron

Cornell University - Samuel Curtis Johnson Graduate School of Management

Moritz Schularick

University of Bonn - Department of Economics; Centre for Economic Policy Research (CEPR)

Kaspar Zimmermann

Leibniz Institute for Financial Research SAFE

Date Written: March 12, 2022

Abstract

This paper studies a newly compiled data set of annual balance sheets of more than 11,000 commercial banks across 17 advanced economies since 1870. The new data expose the central role of large banks for credit cycles and financial instability throughout modern financial history and the reorganization of the banking sector in the aftermath of crises. Large banks account for a large and growing share of asset growth during credit booms, take more risks, contract lending more in crises, and suffer higher losses. Yet despite their worse performance, large banks are less likely to fail during crises and even tend to gain market share. Our findings are consistent with theories of excessive risk taking by too-big-to-fail institutions and demonstrate how banking sector concentration and financial fragility reinforce one another.

Keywords: financial history, banking crises, financial regulation, too big to fail

JEL Classification: E02, E44, E51, E61, F44, G01, G18, G21

Suggested Citation

Baron, Matthew and Schularick, Moritz and Zimmermann, Kaspar, Survival of the Biggest: Large Banks and Crises since 1870 (March 12, 2022). Available at SSRN: https://ssrn.com/abstract=4189014 or http://dx.doi.org/10.2139/ssrn.4189014

Matthew Baron (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Moritz Schularick

University of Bonn - Department of Economics ( email )

Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Kaspar Zimmermann

Leibniz Institute for Financial Research SAFE ( email )

Frankfurt am Main
Germany

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