Interconnectedness of Financial Conglomerates

Abstract

Being active in both the insurance sector and the banking sector, financial conglomerates intrinsically increase the interconnections between the banking sector and the insurance sector. We address two main concerns about financial conglomerates using a unique database on bilateral exposures between 21 French financial institutions. First, we investigate to what extent to which the insurers that are part of financial conglomerates differ from pure insurers. Second, we show that in the presence of sovereign risk, the components of a financial conglomerate are better off than if they were distinct entities. Our empirical findings bring a new perspective to the previous results of the literature based on using different types of data.

France

“…Similarly, banks' and insurance companies' exposures to funds from the same group vary between 1 percent to 6 percent of total assets. In other work by the Autorité de Contrôle Prudentiel et de Résolution (ACPR), Hauton and Héam (2015) find that insurance components within groups are more exposed to the banking component but diversification at the group level increases resilience.…”

“…Hauton and Héam (2015) find that diversification occurs at the group level, so that perhaps common exposure risks are slightly overstated Benhami et al (2018). report that intra-group exposures do not exceed 4 percent of total group assets.…”