Do We Need Big Banks? Evidence on Performance, Strategy and Market Discipline
For an international sample of banks, the authors construct measures of a bank's absolute size and its systemic size defined as size relative to the national economy. They examine how a bank's risk and return, its activity mix and funding...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110228093403 http://hdl.handle.net/10986/3343 |
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okr-10986-3343 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCOUNTING ASSET RATIO ASSETS RATIO BALANCE SHEET BANK ACTIVITY BANK CAPITALIZATION BANK EQUITY BANK FAILURES BANK HOLDING BANK HOLDING COMPANIES BANK HOLDING COMPANY BANK INSOLVENCY BANK LIABILITIES BANK LIABILITY BANK MARKET BANK MERGERS BANK OF ENGLAND BANK PROFITABILITY BANK RATE BANK RISK BANK SIZE BANKING INDUSTRY BANKRUPTCY BANKS BIG BANKS BOND BOND HOLDERS BOND MARKETS BONDS BOOK VALUE BUSINESS OPPORTUNITIES BUSINESS STRATEGY CAPITAL ASSETS CAPITAL MARKETS CAPITAL TO ASSET RATIO CAPITALIZATION CDS COMMERCIAL BANKS CONSOLIDATION CONSUMER PROTECTION COOPERATIVE BANK COOPERATIVE BANKS CORPORATE GOVERNANCE CREDIT BANK CREDIT BANKS CREDIT INSTITUTION CUSTOMER BASE DEBENTURE DEBENTURES DEBT INVESTMENT DEBT ISSUES DEFAULT RISK DEFICITS DEPENDENT DEPOSIT DEPOSIT INSTITUTION DEPOSIT INSURANCE DEPOSIT INTEREST DEPOSIT LIABILITIES DEPOSITORS DEPOSITS DEVELOPMENT POLICY DISTRESSED BANK DIVERSIFICATION DOMESTIC MARKETS DUMMY VARIABLE DUMMY VARIABLES EARNING ASSETS EARNINGS EQUITY RATIO EXPENDITURE EXPLICIT DEPOSIT INSURANCE FEE INCOME FINANCIAL ASSISTANCE FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL SECTOR FISCAL CAPACITIES GDP GDP DEFLATOR GDP PER CAPITA GOVERNANCE STRUCTURES GOVERNMENT REGULATION GOVERNMENT SUPPORT GROWTH OPPORTUNITIES GROWTH RATE HIGH INTEREST RATE HIGH INTEREST RATES INCOME MEASURES INCOME STATEMENT INCREASING RETURNS INCREASING RETURNS TO SCALE INDIVIDUAL BANK INDIVIDUAL BANKS INFLATION INFLATION RATE INSOLVENT INSURED DEPOSITS INTEREST COST INTEREST EXPENSE INTEREST INCOME INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INVESTMENT BANK INVESTMENT BANKS ISLAMIC BANK ISLAMIC BANKS LARGE BANK LARGE BANK FAILURES LARGE BANKS LIABILITY LIABILITY SIDE LIQUID ASSETS LIQUIDITY LOAN LOAN CUSTOMER MACROECONOMIC CONTROL MARKET DISCIPLINE MERGER MORTGAGE MORTGAGE BANKS NATIONAL BANKRUPTCY NATIONAL ECONOMIES NATIONAL ECONOMY NUMBER OF BANKS OPERATING COSTS OPERATING INCOME PERSONNEL EXPENSES PORTFOLIO PORTFOLIO ANALYSIS POSITIVE COEFFICIENT POSITIVE COEFFICIENTS PROFITABILITY PROFITABLE BUSINESS PUBLIC FINANCE PUBLIC FINANCES PUT OPTION RATE OF RETURN RATES OF RETURN REAL ESTATE REAL GDP RETURN RETURN ON ASSETS RETURNS RETURNS TO SCALE RISK FACTOR RISK FACTORS RISK OF BANK FAILURE SAFETY NET SAVINGS SAVINGS BANKS SECURITIES SHARE OF INCOME SHAREHOLDERS SHORT TERM DEBT SOLVENCY SUBORDINATED DEBT SYSTEMIC RISK TAX TAXATION TERM CREDIT TRADING TRADING INCOME TREASURY WHOLESALE FUNDING |
| spellingShingle |
ACCOUNTING ASSET RATIO ASSETS RATIO BALANCE SHEET BANK ACTIVITY BANK CAPITALIZATION BANK EQUITY BANK FAILURES BANK HOLDING BANK HOLDING COMPANIES BANK HOLDING COMPANY BANK INSOLVENCY BANK LIABILITIES BANK LIABILITY BANK MARKET BANK MERGERS BANK OF ENGLAND BANK PROFITABILITY BANK RATE BANK RISK BANK SIZE BANKING INDUSTRY BANKRUPTCY BANKS BIG BANKS BOND BOND HOLDERS BOND MARKETS BONDS BOOK VALUE BUSINESS OPPORTUNITIES BUSINESS STRATEGY CAPITAL ASSETS CAPITAL MARKETS CAPITAL TO ASSET RATIO CAPITALIZATION CDS COMMERCIAL BANKS CONSOLIDATION CONSUMER PROTECTION COOPERATIVE BANK COOPERATIVE BANKS CORPORATE GOVERNANCE CREDIT BANK CREDIT BANKS CREDIT INSTITUTION CUSTOMER BASE DEBENTURE DEBENTURES DEBT INVESTMENT DEBT ISSUES DEFAULT RISK DEFICITS DEPENDENT DEPOSIT DEPOSIT INSTITUTION DEPOSIT INSURANCE DEPOSIT INTEREST DEPOSIT LIABILITIES DEPOSITORS DEPOSITS DEVELOPMENT POLICY DISTRESSED BANK DIVERSIFICATION DOMESTIC MARKETS DUMMY VARIABLE DUMMY VARIABLES EARNING ASSETS EARNINGS EQUITY RATIO EXPENDITURE EXPLICIT DEPOSIT INSURANCE FEE INCOME FINANCIAL ASSISTANCE FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL SECTOR FISCAL CAPACITIES GDP GDP DEFLATOR GDP PER CAPITA GOVERNANCE STRUCTURES GOVERNMENT REGULATION GOVERNMENT SUPPORT GROWTH OPPORTUNITIES GROWTH RATE HIGH INTEREST RATE HIGH INTEREST RATES INCOME MEASURES INCOME STATEMENT INCREASING RETURNS INCREASING RETURNS TO SCALE INDIVIDUAL BANK INDIVIDUAL BANKS INFLATION INFLATION RATE INSOLVENT INSURED DEPOSITS INTEREST COST INTEREST EXPENSE INTEREST INCOME INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INVESTMENT BANK INVESTMENT BANKS ISLAMIC BANK ISLAMIC BANKS LARGE BANK LARGE BANK FAILURES LARGE BANKS LIABILITY LIABILITY SIDE LIQUID ASSETS LIQUIDITY LOAN LOAN CUSTOMER MACROECONOMIC CONTROL MARKET DISCIPLINE MERGER MORTGAGE MORTGAGE BANKS NATIONAL BANKRUPTCY NATIONAL ECONOMIES NATIONAL ECONOMY NUMBER OF BANKS OPERATING COSTS OPERATING INCOME PERSONNEL EXPENSES PORTFOLIO PORTFOLIO ANALYSIS POSITIVE COEFFICIENT POSITIVE COEFFICIENTS PROFITABILITY PROFITABLE BUSINESS PUBLIC FINANCE PUBLIC FINANCES PUT OPTION RATE OF RETURN RATES OF RETURN REAL ESTATE REAL GDP RETURN RETURN ON ASSETS RETURNS RETURNS TO SCALE RISK FACTOR RISK FACTORS RISK OF BANK FAILURE SAFETY NET SAVINGS SAVINGS BANKS SECURITIES SHARE OF INCOME SHAREHOLDERS SHORT TERM DEBT SOLVENCY SUBORDINATED DEBT SYSTEMIC RISK TAX TAXATION TERM CREDIT TRADING TRADING INCOME TREASURY WHOLESALE FUNDING Demirgüç-Kunt, Asli Huizinga, Harry Do We Need Big Banks? Evidence on Performance, Strategy and Market Discipline |
| relation |
Policy Research Working Paper ; No. 5576 |
| description |
For an international sample of banks,
the authors construct measures of a bank's absolute
size and its systemic size defined as size relative to the
national economy. They examine how a bank's risk and
return, its activity mix and funding strategy, and the
extent to which it faces market discipline depend on both
size measures. Although absolute size presents banks with a
trade-off between risk and return, systemic size is an
unmitigated bad, reducing return without a reduction in
risk. Despite too-big-to-fail subsidies, the analysis finds
that systemically large banks are subject to greater market
discipline as evidenced by a higher sensitivity of their
funding costs to risk proxies, suggesting that they are
often too big to save. The finding that a bank's
interest cost tends to rise with its systemic size can also
in part explain why a bank's rate of return on assets
tends to decline with systemic size. Overall, the results
cast doubt on the need to have systemically large banks.
Bank growth has not been in the interest of bank
shareholders in small countries, and it is not clear whether
those in larger countries have benefited. Although market
discipline through increasing funding costs should keep
systemic size in check, clearly it has not been effective in
preventing the emergence of such banks in the first place.
Inadequate corporate governance structures at banks seem to
have enabled managers to pursue high-growth strategies at
the expense of shareholders, providing support for greater
government regulation. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Demirgüç-Kunt, Asli Huizinga, Harry |
| author_facet |
Demirgüç-Kunt, Asli Huizinga, Harry |
| author_sort |
Demirgüç-Kunt, Asli |
| title |
Do We Need Big Banks? Evidence on Performance, Strategy and Market Discipline |
| title_short |
Do We Need Big Banks? Evidence on Performance, Strategy and Market Discipline |
| title_full |
Do We Need Big Banks? Evidence on Performance, Strategy and Market Discipline |
| title_fullStr |
Do We Need Big Banks? Evidence on Performance, Strategy and Market Discipline |
| title_full_unstemmed |
Do We Need Big Banks? Evidence on Performance, Strategy and Market Discipline |
| title_sort |
do we need big banks? evidence on performance, strategy and market discipline |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110228093403 http://hdl.handle.net/10986/3343 |
| _version_ |
1764386827241783296 |
| spelling |
okr-10986-33432021-04-23T14:02:09Z Do We Need Big Banks? Evidence on Performance, Strategy and Market Discipline Demirgüç-Kunt, Asli Huizinga, Harry ACCOUNTING ASSET RATIO ASSETS RATIO BALANCE SHEET BANK ACTIVITY BANK CAPITALIZATION BANK EQUITY BANK FAILURES BANK HOLDING BANK HOLDING COMPANIES BANK HOLDING COMPANY BANK INSOLVENCY BANK LIABILITIES BANK LIABILITY BANK MARKET BANK MERGERS BANK OF ENGLAND BANK PROFITABILITY BANK RATE BANK RISK BANK SIZE BANKING INDUSTRY BANKRUPTCY BANKS BIG BANKS BOND BOND HOLDERS BOND MARKETS BONDS BOOK VALUE BUSINESS OPPORTUNITIES BUSINESS STRATEGY CAPITAL ASSETS CAPITAL MARKETS CAPITAL TO ASSET RATIO CAPITALIZATION CDS COMMERCIAL BANKS CONSOLIDATION CONSUMER PROTECTION COOPERATIVE BANK COOPERATIVE BANKS CORPORATE GOVERNANCE CREDIT BANK CREDIT BANKS CREDIT INSTITUTION CUSTOMER BASE DEBENTURE DEBENTURES DEBT INVESTMENT DEBT ISSUES DEFAULT RISK DEFICITS DEPENDENT DEPOSIT DEPOSIT INSTITUTION DEPOSIT INSURANCE DEPOSIT INTEREST DEPOSIT LIABILITIES DEPOSITORS DEPOSITS DEVELOPMENT POLICY DISTRESSED BANK DIVERSIFICATION DOMESTIC MARKETS DUMMY VARIABLE DUMMY VARIABLES EARNING ASSETS EARNINGS EQUITY RATIO EXPENDITURE EXPLICIT DEPOSIT INSURANCE FEE INCOME FINANCIAL ASSISTANCE FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL SECTOR FISCAL CAPACITIES GDP GDP DEFLATOR GDP PER CAPITA GOVERNANCE STRUCTURES GOVERNMENT REGULATION GOVERNMENT SUPPORT GROWTH OPPORTUNITIES GROWTH RATE HIGH INTEREST RATE HIGH INTEREST RATES INCOME MEASURES INCOME STATEMENT INCREASING RETURNS INCREASING RETURNS TO SCALE INDIVIDUAL BANK INDIVIDUAL BANKS INFLATION INFLATION RATE INSOLVENT INSURED DEPOSITS INTEREST COST INTEREST EXPENSE INTEREST INCOME INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INVESTMENT BANK INVESTMENT BANKS ISLAMIC BANK ISLAMIC BANKS LARGE BANK LARGE BANK FAILURES LARGE BANKS LIABILITY LIABILITY SIDE LIQUID ASSETS LIQUIDITY LOAN LOAN CUSTOMER MACROECONOMIC CONTROL MARKET DISCIPLINE MERGER MORTGAGE MORTGAGE BANKS NATIONAL BANKRUPTCY NATIONAL ECONOMIES NATIONAL ECONOMY NUMBER OF BANKS OPERATING COSTS OPERATING INCOME PERSONNEL EXPENSES PORTFOLIO PORTFOLIO ANALYSIS POSITIVE COEFFICIENT POSITIVE COEFFICIENTS PROFITABILITY PROFITABLE BUSINESS PUBLIC FINANCE PUBLIC FINANCES PUT OPTION RATE OF RETURN RATES OF RETURN REAL ESTATE REAL GDP RETURN RETURN ON ASSETS RETURNS RETURNS TO SCALE RISK FACTOR RISK FACTORS RISK OF BANK FAILURE SAFETY NET SAVINGS SAVINGS BANKS SECURITIES SHARE OF INCOME SHAREHOLDERS SHORT TERM DEBT SOLVENCY SUBORDINATED DEBT SYSTEMIC RISK TAX TAXATION TERM CREDIT TRADING TRADING INCOME TREASURY WHOLESALE FUNDING For an international sample of banks, the authors construct measures of a bank's absolute size and its systemic size defined as size relative to the national economy. They examine how a bank's risk and return, its activity mix and funding strategy, and the extent to which it faces market discipline depend on both size measures. Although absolute size presents banks with a trade-off between risk and return, systemic size is an unmitigated bad, reducing return without a reduction in risk. Despite too-big-to-fail subsidies, the analysis finds that systemically large banks are subject to greater market discipline as evidenced by a higher sensitivity of their funding costs to risk proxies, suggesting that they are often too big to save. The finding that a bank's interest cost tends to rise with its systemic size can also in part explain why a bank's rate of return on assets tends to decline with systemic size. Overall, the results cast doubt on the need to have systemically large banks. Bank growth has not been in the interest of bank shareholders in small countries, and it is not clear whether those in larger countries have benefited. Although market discipline through increasing funding costs should keep systemic size in check, clearly it has not been effective in preventing the emergence of such banks in the first place. Inadequate corporate governance structures at banks seem to have enabled managers to pursue high-growth strategies at the expense of shareholders, providing support for greater government regulation. 2012-03-19T18:00:41Z 2012-03-19T18:00:41Z 2011-02-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110228093403 http://hdl.handle.net/10986/3343 English Policy Research Working Paper ; No. 5576 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper |