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Banks' complexity-risk nexus and the role of regulation

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Authors and Corporations: Martynova, Natalya (Author), Vogel, Ursula (Author)
Other Authors: Vogel, Ursula 1982- [Author]
Type of Resource: E-Book
Language: English
published:
Frankfurt am Main Deutsche Bundesbank [2021]
Series: Deutsche Bundesbank: Discussion paper ; no 2021, 14
Subjects:
Source: Verbunddaten SWB
Lizenzfreie Online-Ressourcen
ISBN: 9783957298225
Description
Summary: 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.
Physical Description: 1 Online-Ressource (circa 61 Seiten); Illustrationen
ISBN: 9783957298225