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August 17, 2016


Why Are Big Banks Getting Bigger?


August 17, 2016
12:00 - 13:15


DIW Berlin im Quartier 110
Room 3.3.002A
Mohrenstraße 58
10117 Berlin


Christoffer Koch, Federal Reserve Bank of Dallas

We analyze the increasing concentration of U.S. banking assets using nonparametric empirical methods that characterize dynamic power law distributions in terms of two shaping factors the asset reversion rates and idiosyncratic volatilities for different size-ranked banking institutions. We show that the greater concentration of bank-holding company (BHC) assets is caused by decreased mean reversion, a result consistent with 1990s policy changes. In contrast, greater concentration of subsidiary bank assets is caused by increased idiosyncratic volatility, yet, idiosyncratic volatility of parent BHC assets fell. This contrast suggests diversi cation through non-banking activities has reduced idiosyncratic BHC asset volatilities and affected systemic risk.