Big Banks, Idiosyncratic Volatility, and Systemic Risk
American Economic Review
vol. 107,
no. 5, May 2017
(pp. 603-07)
Abstract
Starting in the 1990s, US bank assets grew more concentrated among a few large institutions. We explore the changing role of idiosyncratic volatility as a shaping force of the bank asset power law distribution. Our results reveal that idiosyncratic asset volatilities for bank-holding companies declined since the 1990s. To the extent that firm-specific shocks can have significant macroeconomic consequences, this result implies that even as one obvious source of aggregate risk and contagion--bank asset concentration--has increased, another important source--idiosyncratic volatility--has diminished.Citation
Fernholz, Ricardo T., and Christoffer Koch. 2017. "Big Banks, Idiosyncratic Volatility, and Systemic Risk." American Economic Review, 107 (5): 603-07. DOI: 10.1257/aer.p20171007Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms