The Contribution of Large Banking Institutions to Systemic Risk: What Do We Know? A Literature Review

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  • Nils Moch

Against the background of the global financial crisis, we review recent literature on the debate about "too big to fail". This is (still) one of the key issues in banking literature since it determines the conditions for adequate banking regulation, financial stability and economic welfare. Analyzing 30 papers from 2009 to 2017, our work focusses on the impact of large banks on systemic risk. Large financial institutions can affect systemic risk by either contributing to systemic risk or being extremely exposed to sources of systematic risk and contagion. We find a considerable number of theoretical and empirical studies providing evidence that against the background of the constitution of present-day real financial systems, bank size is a key predictor for systemic risk and that the largest banks disproportionately contribute to overall risk. This relationship is found in samples of different composition, for various periods and with different measures covering diverse aspects of systemic risk.

Original languageEnglish
JournalReview of Economics
Issue number3
Pages (from-to)231-257
Number of pages27
Publication statusPublished - 01.12.2018

    Research areas

  • bank bailouts, banking crises, financial stability, systemic risk, too big to fail
  • Management studies