Article ID Journal Published Year Pages File Type
5088338 Journal of Banking & Finance 2016 15 Pages PDF
Abstract

While the policy of too-big-to-fail has received wide attention in the literature, there is little agreement regarding economies of scale for financial firms. We take the stand that systemic risk increases when the larger players in the financial sector have a larger share of output. Calculations indicate that the cost to the macro-economy due to increased systemic risk is always much larger than the potential benefit due to scale economies. When distributional and intergenerational issues are considered, the potential benefits to economies of scale are unlikely to ever exceed the potential costs due to increased risk of a banking crisis.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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