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Bank Consolidation, Internationalization, and Conglomeration: Trends and Implications for Financial Risk

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  • Gianni De Nicoló
  • Philip Bartholomew
  • Jahanara Zaman
  • Mary Zephirin

Abstract

This paper documents trends in bank activity, consolidation, internationalization, and financial firm conglomeration with data on more than 100 countries, and explores the extent to which financial firm risk and systemic risk potential in banking are related to consolidation and conglomeration. The relationship between consolidation, conglomeration and financial risk is documented using financial data on the largest 500 financial firms worldwide and on large banks in about 90 countries. We find that (a) large conglomerate firms did not exhibit levels of risk‐taking lower than smaller and specialized firms in 1995, while they exhibited higher levels of risk‐taking in 2000; (b) highly concentrated banking systems exhibited levels of systemic risk potential higher than less concentrated systems during the 1993–2000 period, and this relationship has strengthened during the 1997–2000 period. We outline research directions aimed at explaining why bank consolidation and conglomeration may not necessarily yield either safer financial firms or more resilient banking systems.

Suggested Citation

  • Gianni De Nicoló & Philip Bartholomew & Jahanara Zaman & Mary Zephirin, 2004. "Bank Consolidation, Internationalization, and Conglomeration: Trends and Implications for Financial Risk," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 13(4), pages 173-217, October.
    • Handle: RePEc:wly:finmar:v:13:y:2004:i:4:p:173-217
    DOI: 10.1111/j.0963-8008.2004.00076.x
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    References listed on IDEAS

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    2. Berger, Allen N. & Demsetz, Rebecca S. & Strahan, Philip E., 1999. "The consolidation of the financial services industry: Causes, consequences, and implications for the future," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 135-194, February.
    3. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October.
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