NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Bank Complexity, Governance, and Risk

Ricardo Correa, Linda S. Goldberg

NBER Working Paper No. 27547
Issued in July 2020
NBER Program(s):International Finance and Macroeconomics

Bank holding companies (BHCs) can be complex organizations, conducting multiple lines of business through many distinct legal entities and across a range of geographies. While such complexity raises the costs of bank resolution when organizations fail, the effect of complexity on BHCs' broader risk profile is less well understood. Business, organizational, and geographic complexity can engender explicit trade-offs between the agency problems that increase risk and the diversification, liquidity management, and synergy improvements that reduce risk. The outcomes of such trade-offs may depend on bank governance arrangements. We test these conjectures using data on large U.S. BHCs for the 1996-2018 period. Organizational complexity and geographic scope tend to provide diversification gains and reduce idiosyncratic and liquidity risks while also increasing BHCs' exposure to systematic and systemic risks. Regulatory changes focused on organizational complexity have significantly reduced this type of complexity, leading to a decrease in systemic risk and an increase in liquidity risk among BHCs. While bank governance structures have, in some cases, significantly affected the buildup of BHC complexity, better governance arrangements have not moderated the effects of complexity on risk outcomes.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w27547

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us