Identifying Systemically Important Financial Institutions: Size and Other Determinants

39 Pages Posted: 12 Jul 2012 Last revised: 19 Oct 2012

See all articles by Kyle Moore

Kyle Moore

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Chen Zhou

De Nederlandsche Bank; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

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Date Written: July 12, 2012

Abstract

This paper analyzes the conditions under which a financial institution is systemically important. Measuring the level of systemic importance of financial institutions, we find that size is a leading determinant confirming the usual 'Too Big To Fail' argument. Nevertheless, the relation is non-linear during the recent global financial crisis. Moreover, since 2003, other determinants of systemic importance emerge. For example, decisions made by financial institutions on their choice of asset holdings, methods of funding, and sources of income have had a significant effect on the level of systemic importance during the global financial crises starting in 2008. These findings help to identify systemically important financial institutions by examining their relevant banking activities and to further design macro-prudential regulation towards reducing the systemic risk in the financial system.

JEL Classification: G01, G21, G28

Suggested Citation

Moore, Kyle and Zhou, Chen, Identifying Systemically Important Financial Institutions: Size and Other Determinants (July 12, 2012). De Nederlandsche Bank Working Paper No. 347, Available at SSRN: https://ssrn.com/abstract=2104145 or http://dx.doi.org/10.2139/ssrn.2104145

Kyle Moore (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Chen Zhou

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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