Banks’ size, scope and systemic risk: What role for conflicts of interest?

O.G. De Jonghe, M. Diepstraten, G. Schepens

Research output: Contribution to journalArticleScientificpeer-review

45 Citations (Scopus)
202 Downloads (Pure)

Abstract

We show that the effect of non-interest income on systemic risk exposures varies with bank size and a country’s institutional setting. Non-interest income reduces large banks’ systemic risk exposures, whereas it increases that of small banks. However, exploiting heterogeneity in countries’ institutional setting, we show that the bright side of innovation by large banks (lower systemic risk exposure for diversified banks) disappears in countries with more private and asymmetric information, more corruption and in concentrated banking markets. These empirical findings provide support for Saunders and Cornett (2014) who hypothesize which institutional features make the materialization of conflicts of interest more likely.
Original languageEnglish
Pages (from-to)S3-S13
JournalJournal of Banking & Finance
Volume61 (Supplement 1)
DOIs
Publication statusPublished - 31 Dec 2015

Keywords

  • systemic risk
  • diversification
  • innovation
  • conflict of interest
  • global sample

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