City Research Online

Abstract

Using a large sample of European listed banks, we investigate the relationship between a bank’s business model and systemic risk between 2005 and 2020, a period which includes various episodes of instability. Our findings indicate that, during tranquil periods, banks with different business models exhibit similar sensitivity to systemic risk. However, during periods of instability, the type of business model becomes critical: investment banks contribute more to and are more exposed to systemic risk. Distinguishing between endogenous and exogenous crises, our results reveal that market-oriented banks contribute more to systemic risk when instability is endogenous to the financial sector. Conversely, focused retail banks consistently show lower contributions and exposures to systemic risk. Additionally, our findings highlight the importance of business model migrations in reducing systemic risk. Banks transitioning from diversified to more retail-oriented models reduce their systemic risk, whereas migrations in the opposite direction do not exhibit the same benefit. These findings underscore the importance of maintaining diverse business models in the banking sector to enhance financial stability.

Publication Type:	Article
Additional Information:	© 2025 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
Publisher Keywords:	Systemic risk, Bank business models, Conditional value at risk, Marginal expected shortfall, Crises
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

Export

Downloads