Survival of the Biggest: Large Banks and Financial Crises

75 Pages Posted: 19 Aug 2022 Last revised: 21 Jun 2023

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: June 20, 2023

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 allow us to investigate banking industry structure and bank-level dynamics before, during, and after financial crises. We show that a country's largest banks (i.e., the top-5 by assets) typically gain market share in crises, as small banks fail more often or are absorbed, making the largest banks even more dominant after crises. This is despite the fact that the largest banks tend to take more risk before crises, suffer greater equity losses in crises, and contract their lending more. The survival and expansion of the largest banks, despite their greater losses during crises, appear linked both to substantially higher rates of government rescues and to the fact that their deposit flows are more insensitive to bank losses, compared to smaller banks. We find no evidence that large-bank-dominated systems have lower crisis frequency. Conditional on crises, large-bank-dominated systems see more severe economic outcomes.

Keywords: financial history, banking crises, financial regulation

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 Financial Crises (June 20, 2023). 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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