Systemic Risk and Bank Consolidation: International Evidence
Journal of Banking and Finance, Forthcoming
Campus for Finance, 2012 WHU Koblenz
Southwestern Finance Association Annual Meeting 2012
Eastern Finance Association Annual Meeting 2012
Midwest Finance Association, Midwest Finance Association 2012 Annual Meeting
5th Financial Risks International Forum on "Systemic Risk", Institut Louis Bachelier
49 Pages Posted: 5 Jan 2012 Last revised: 20 Nov 2013
Date Written: November 20, 2013
Abstract
This paper analyzes the systemic risk effects of bank mergers to test the "concentration-fragility" hypothesis. We use the marginal expected shortfall as well as the lower tail dependence between a bank's stock returns and a relevant bank sector index to capture the merger-related change in an acquirer's contribution to systemic risk. In our empirical analysis of a dataset of international domestic and cross-border mergers, we find clear evidence for a significant increase in the merging banks', the combined banks' as well as their competitors' contribution to systemic risk following mergers, thus confirming the "concentration-fragility" hypothesis.
Keywords: M&A, Banks, Consolidation, Systemic Risk, Lower Tail Dependence, Marginal Expected Shortfall, Distance to Default
JEL Classification: G34, G21, G14
Suggested Citation: Suggested Citation
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