Lending Concentration, Bank Performance and Systemic Risk : Exploring Cross-Country Variation
Using both market-based and annual report-based approaches to measure lending specialization for a broad cross-section of banks and countries over the period 2002 to 2011, this paper is the first to empirically gauge the relationship between bank l...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/09/18259886/lending-concentration-bank-performance-systemic-risk-exploring-cross-country-variation http://hdl.handle.net/10986/15830 |
| Summary: | Using both market-based and annual
report-based approaches to measure lending specialization
for a broad cross-section of banks and countries over the
period 2002 to 2011, this paper is the first to empirically
gauge the relationship between bank lending specialization
and bank performance and stability in an international
sample. Theory suggests that banks might benefit from
specialization in the form of higher screening and
monitoring efficiency, while a diversified loan portfolio
might also enhance stability. This paper finds that sectoral
specialization increases volatility and systemic risk
exposures, while not leading to higher returns. The paper
also documents important time, cross-bank, and cross-county
variation in this relationship, which is stronger post 2007,
for richer countries, countries without regulatory
requirements on diversification, banks with lower market
power, and banks with more traditional intermediation models. |
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