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Business complexity and geographic expansion in banking

Author

Listed:
  • Isabel Argimón

    (Banco de España)

  • María Rodríguez-Moreno

    (Banco de España)

Abstract
Using Spanish confidential supervisory data, this paper examines the effect of geographic and business complexity, their interaction and relative importance for banks’ risk, where the degree of complexity stems from the corporate structure of banking groups affiliates. The results show that while business complexity results in higher risk, geographic complexity gives rise to diversification benefits, thus lowering risk. However, geographic complexity alone is not enough, as its effect depends on how it interacts with business complexity. Higher business complexity abroad in relation to that at home may counterbalance the benefits of diversification. In the same vein, focusing abroad on areas in which the group does not have expertise at home also results in higher risk.

Suggested Citation

  • Isabel Argimón & María Rodríguez-Moreno, 2021. "Business complexity and geographic expansion in banking," Working Papers 2132, Banco de España.
    • Handle: RePEc:bde:wpaper:2132
    as

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    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/21/Files/dt2132e.pdf
    File Function: First version, August 2021
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    References listed on IDEAS

    as
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    5. Correa, Ricardo & Goldberg, Linda S., 2022. "Bank complexity, governance, and risk," Journal of Banking & Finance, Elsevier, vol. 134(C).
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    risk; global banking; bank complexity; diversification benefits;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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