2 July 2020
Fernando Moreira, in collaboration with Shuo Liang and Joosung Lee from the University of Edinburgh Business School, published a paper titled ‘Diversification and Bank Stability’.
The paper was published in Economics Letters in June. It investigates the role of diversification in two dimensions of bank risk: systemic and individual. The authors innovatively construct a country level diversification measure to capture risk distribution among banks.
It was based on a large dataset consisting of 1,346 international publicly listed banks from 49 countries from 1998 to 2018. The results confirm existing theoretical conclusions that higher diversification leads to more systemic risk, and less bank standalone risk.