We examine the relationship between bank size and financial stability by viewing the supervisor of a banking system as an ‘investor’ holding a portfolio of banks. Based on this view, we investigate the role of large banks in determining the systemic risk in this portfolio. Our results, based on book data of U.S. banks and Bank Holding Companies, indicate that the largest banks are consistently overrepresented in the current portfolio compared with the minimum variance portfolio. Moreover, the risk level of the portfolio can be reduced by limiting concentration without sacrificing returns.
|Place of Publication||Maastricht|
|Publisher||Maastricht University, Graduate School of Business and Economics|
|Publication status||Published - 1 Jan 2014|
|Series||GSBE Research Memoranda|
Bos, J. W. B., Lamers, M., & Purice, V. (2014). Carrying the (paper) burden: A portfolio view of systemic risk and optimal bank size. Maastricht University, Graduate School of Business and Economics. GSBE Research Memoranda, No. 014