American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Big Banks, Idiosyncratic Volatility, and Systemic Risk
American Economic Review
vol. 107,
no. 5, May 2017
(pp. 603–07)
Abstract
Starting in the 1990s, US bank assets grew more concentrated among a few large institutions. We explore the changing role of idiosyncratic volatility as a shaping force of the bank asset power law distribution. Our results reveal that idiosyncratic asset volatilities for bank-holding companies declined since the 1990s. To the extent that firm-specific shocks can have significant macroeconomic consequences, this result implies that even as one obvious source of aggregate risk and contagion--bank asset concentration--has increased, another important source--idiosyncratic volatility--has diminished.Citation
Fernholz, Ricardo T., and Christoffer Koch. 2017. "Big Banks, Idiosyncratic Volatility, and Systemic Risk." American Economic Review, 107 (5): 603–07. DOI: 10.1257/aer.p20171007Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms