The Complexity of Bank Holding Companies: A Topological Approach

We develop metrics to assess the complexity of a bank holding company (BHC), based on its ownership structure. Large BHCs have intricate ownership hierarchies involving hundreds or even thousands of legal entities that may contribute to increased operational risk and greater opacity. Our measures ar...

Full description

Saved in:
Bibliographic Details
Published inJournal of banking & finance Vol. 118; p. 105789
Main Authors Flood, Mark D., Kenett, Dror Y., Lumsdaine, Robin L., Simon, Jonathan K.
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.09.2020
Subjects
Edge contraction
Graph quotient
Opacity
Orderly resolution
Supervisory coordination
Y-15
Y-15
Graph quotient
Edge contraction
G33
G21
Supervisory coordination
Opacity
G28
C81
Orderly resolution
Online AccessGet full text

Cover

More Information
Summary:We develop metrics to assess the complexity of a bank holding company (BHC), based on its ownership structure. Large BHCs have intricate ownership hierarchies involving hundreds or even thousands of legal entities that may contribute to increased operational risk and greater opacity. Our measures are mathematically grounded, intuitive, and easy to implement. They may be particularly useful in the context of resolution, where regulators often face significant time pressure and coordination challenges. We use regulatory filing data from the Federal Reserve to validate the measures, demonstrating that they provide a useful complement to balance sheet information in assessing BHC complexity. Notably, the proposed measures are highly correlated with existing complexity indicators that are not based on organizational structure and are less correlated with size than these existing complexity measures. We show that the proposed measures provide additional explanatory power for the regulatory indicators, even after controlling for size.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2020.105789