The Intrafirm Complexity of Systemically Important Financial Institutions

Lumsdaine, Robin L.; Rockmore, Daniel N.; Foti, Nick; Leibon, Greg; Farmer, J. Doyne

doi:10.2139/ssrn.2604166

Cited by 9 publications

(7 citation statements)

References 62 publications

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“…Despite the inadequacy of the available data, we believe that our analysis has produced two implications of policy significance. First, although Avraham et al (2012), Cetorelli and Goldberg (2014), Laeven et al (2014) and Lumsdaine et al (2015) all reported a positive and less than proportional relationship between the number of subsidiaries and asset size based on cross-sectional data, our estimates, based on panel data, imply that the relationship disappears into insignificance once time effects are introduced. The economic logic for a causal relationship between asset size and corporate complexity has never been clear.…”

Section: Concluding Commentscontrasting

confidence: 54%

“…Despite the relevance of the complexity of bank corporate structures for supervision and resolution policy, it has received relatively little attention in the literature, most of it after the 2008 financial crisis (Herring and Santomero 1990;Carmassi 2010, 2015;Avraham et al 2012;Cetorelli and Goldberg 2014;Lumsdaine et al 2015). This paper builds on and extends Carmassi (2010, 2015), chapters in the Oxford Handbook of Banking, which present a broad analysis of the corporate structure of Global Systemically Important Banks (G-SIBs) with emphasis on the implications for systemic risk, and a monograph written for the Systemic Risk Council (Carmassi and Herring 2015) that surveys a broad range of issues regarding the corporate structure of G-SIBs including the evolution of corporate complexity, disclosure, and challenges posed to resolution policy.…”

Section: Introductionmentioning

confidence: 99%

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The Corporate Complexity of Global Systemically Important Banks

Carmassi

Herring

2016

J Financ Serv Res

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The financial crisis of 2007-2009 revealed that the corporate complexity of most of the Global Systemically Important Banks (G-SIBs) presented a formidable obstacle to any plausible orderly resolution of these institutions. This paper documents the extent of this complexity making use of an historical time series, developed by the authors, that shows the evolution of the number of majority-owned subsidiaries of G-SIBs over time. After a very significant increase in complexity before the crisis and until 2011, this trend may be reversing, possibly in response to regulatory and market pressures on banks since then. Nonetheless the reduction in complexity has been uneven across institutions and may not persist. The econometric analysis of this new set of panel data produces two key results with relevant policy implications: first, the relationship found in previous studies between the number of subsidiaries and bank size loses significance when time effects are introduced; second, large mergers and acquisitions are a key driver of complexity and their effect remains significant even when time effects are considered.

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Section: Concluding Commentscontrasting

confidence: 54%

Section: Introductionmentioning

confidence: 99%

The Corporate Complexity of Global Systemically Important Banks

Carmassi

Herring

2016

J Financ Serv Res

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“…In particular, it can be difficult to quantify complexity independently from the size of the institution (one possible approach is proposed by Lumsdaine et al, 2015).…”

Section: Source: Fdicmentioning

confidence: 99%

“…7 In such tree structures, previous literature has found that organizations tend to be siloed, with more communication occurring along connected lines of the rooted directed tree than along unconnected lines (Kleinbaum et al, 2013). Because organizational structure affects communication, Lumsdaine et al (2015) posit that similar silos exist for the communication of risk. Specifically, to the extent that firms with complex organizational structures are more likely to suffer communication lapses, either within the firm or among its regulators, risk that in principle would be contained within the firm may result in more widespread systemic risk the longer it goes undetected.…”

Section: Characterizing Firms' Organizational Structurementioning

confidence: 99%

The Complexity of Bank Holding Companies: A Topological Approach

Flood

Kenett

Lumsdaine

et al. 2020

Journal of Banking & Finance

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“…To have an idea of the complexity, "the number of nodes in the tree varies from 330 to 12,752, while the number of different countries and SIC codes (Standard Industrial Classification) ranges from 23 to 86 and from 27 to 164 respectively " 13 . That is to say, these are corporations that control thousands of companies in dozens of countries and often encompass way over a hundred different economic activities.…”

Section: Figmentioning

confidence: 99%

Corporate Governance: The Chaotic Power of Financial Giants

Dowbor

2017

HSS

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Theorists and practitioners of economics and business slowly beginning to understand the complexity of the corporate system, which today, for better or for worse rules the planet. One proof of that, is the fact that each of 29 financial corporations classified as SIFIs (Systemically Important Financial Institutions) work with an average consolidated assets of around $ 1.82 trillion for banks and $ 0.61 trillion for the insurance companies. For comparison USA GDP is around 15 trillion dollars, and Brazil's GDP, 7th world power, around $ 1.4 trillion. What is more, in recent years, the first in depth research on the worldwide corporate control network was published by the Swiss Federal Institute of Technology, which identified 147 groups that control 40% of the global corporate system. 75% of them were banks. A basic conclusion is unavoidable: over so many years of corporate concentration, through mergers and acquisitions, have created giants which present new management challenges. This is by far the main process that generates the present global instability and disorganization. It is worthwhile to systematize what recent research is showing, because if the 2008 crisis had any advantage it was to shed some light on the mechanisms. The paper shows, that so called corporate governance is basically chaotic power of giant corporations.

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The Intrafirm Complexity of Systemically Important Financial Institutions

Cited by 9 publications

References 62 publications

The Corporate Complexity of Global Systemically Important Banks

The Corporate Complexity of Global Systemically Important Banks

The Complexity of Bank Holding Companies: A Topological Approach

Corporate Governance: The Chaotic Power of Financial Giants

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