Bank specialization leads to expertise, including knowledge on zombie borrowers and the negative impact they exert on healthy borrowers. This induces specialized banks to reduce zombie lending. The reduction in zombie lending is larger when the scope and opportunity cost of negative spillovers...

We show that the effect of diversification on systemic risk exposures varies with bank size and a country's institutional setting. Non-interest income reduces large banks' systemic risk exposures, whereas it increases that of small banks. However, exploiting heterogeneity in countries'...

This paper analyzes the relationship between banks' divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks' systemic risk exposures using extreme value...

This paper analyzes the relationship between banks’ divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks’ systemic risk exposures using extreme value...

This paper uses Bayesian model averaging (BMA) techniques to examine the driving factors of equity returns of U.S. financial institutions. The main advantage of BMA is accounting for model uncertainty. For the period 1986-2010, we fi nd that the most likely model explaining banking sector...