Arbeitspapier
Banks' complexity-risk nexus and the role of regulation
We investigate the relationship between bank complexity and bank risk-taking using German banking data over the period 2005-2017. We find that more complex banking organizations tend to take on more risk, but that this complexity-risk nexus decreases over time. We study how regulatory tightenings inherent in this period, and addressing systemically important banks (SIBs) in general and complexity more specifically, alter banks' choices of complexity and risk. Banks reduce their complexity in response to regulatory tightenings, as these increase the related regulatory costs. Surprisingly, for SIBs in particular, the reduction of regulatory costs is associated with an increase in diversification benefits. As a result, they are able to lower their idiosyncratic risk more than other banks. The overall complexity-risk nexus is lower after regulatory tightenings. Thus, our results indicate that post-crisis regulation is effective in reducing banks' complexity-risk nexus.
- ISBN
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978-3-95729-822-5
- Language
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Englisch
- Bibliographic citation
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Series: Deutsche Bundesbank Discussion Paper ; No. 14/2021
- Classification
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Wirtschaft
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
Corporate Finance and Governance: General
- Subject
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bank complexity
bank risk-taking
bank regulation
too-big-to-fail
- Event
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Geistige Schöpfung
- (who)
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Martynova, Natalya
Vogel, Ursula
- Event
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Veröffentlichung
- (who)
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Deutsche Bundesbank
- (where)
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Frankfurt a. M.
- (when)
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2021
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Martynova, Natalya
- Vogel, Ursula
- Deutsche Bundesbank
Time of origin
- 2021
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