Systemic Risk and Financial Consolidation: Are they Related?

March 1, 2002

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Format: Chicago

Gianni De Nicolo, and Myron L. Kwast Systemic Risk and Financial Consolidation: Are they Related?, (USA: International Monetary Fund, 2002) accessed November 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We argue that firm interdependencies, as measured by correlations of stock returns, provide an indicator of systemic risk potential. We find a positive trend in stock return correlations net of diversification effects for a sample of U.S. Large and Complex Banking Organizations over 1988-99. This finding suggests that the systemic risk potential in the financial sector may have increased. In addition, we find a positive consolidation elasticity of correlations. However, such elasticity exhibits substantial time variation and likely declined in the latter part of the decade. Thus, factors other than consolidation have also been responsible for the upward trend in return correlations.

Subject: Banking, Commercial banks, Financial institutions, Financial sector policy and analysis, Financial sector risk, Loans, Stocks, Systemic risk

Keywords: Bank consolidation, Commercial banks, Consolidation elasticity, Dissimilar firm, Financial sector risk, Firm, Firm level, Firm pair, Global, Large and complex banking organization, Loans, Return, Return correlation, Sample firm, Stocks, Systemic risk, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/055
Stock No:

WPIEA0552002
ISBN:

9781451847635
ISSN:

1018-5941

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