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When Banks Grow Too Big for Their National Economies: Tail Risks, Risk Channels, and Government Guarantees

Hagendorff, Jens; Keasey, Kevin; Vallascas, Francesco

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Authors

Jens Hagendorff

Kevin Keasey



Abstract

Banks are growing ever larger compared to their national economies. We show that increases in relative bank size (measured as a bank’s liabilities divided by national GDP) are linked to banks displaying higher tail risk. This effect is not entirely due to risk channels that disproportionately expose relatively large banks to systematic tail risks, sovereign risks, or banking crises. Instead, we detect a persistent component in the tail risk of relatively large banks that is bank-specific and connected to government guarantees. Furthermore, as banks grow in relative size, tail risks are shifted to debtholders without wealth gains for shareholders.

Citation

Hagendorff, J., Keasey, K., & Vallascas, F. (2018). When Banks Grow Too Big for Their National Economies: Tail Risks, Risk Channels, and Government Guarantees. Journal of Financial and Quantitative Analysis, 53(5), 2041-2066. https://doi.org/10.1017/s0022109018000327

Journal Article Type Article
Acceptance Date Jun 21, 2017
Online Publication Date Aug 22, 2018
Publication Date 2018-10
Deposit Date Jul 28, 2020
Publicly Available Date Jul 28, 2020
Journal Journal of Financial and Quantitative Analysis
Print ISSN 0022-1090
Electronic ISSN 1756-6916
Publisher Cambridge University Press
Peer Reviewed Peer Reviewed
Volume 53
Issue 5
Pages 2041-2066
DOI https://doi.org/10.1017/s0022109018000327
Public URL https://durham-repository.worktribe.com/output/1259650
Related Public URLs http://eprints.whiterose.ac.uk/118037/

Files

Accepted Journal Article (1.2 Mb)
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Publisher Licence URL
http://creativecommons.org/licenses/by-nc-nd/4.0/

Copyright Statement
This article has been published in a revised form in Journal of financial and quantitative analysis http://doi.org/10.1017/S0022109018000327. This version is published under a Creative Commons CC-BY-NC-ND. No commercial re-distribution or re-use allowed. Derivative works cannot be distributed. © Michael G. Foster School of Business, University of Washington 2018.





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