Why do U.S. banks contribute more to global systemic risk

Abstract

We show that U.S. banks are more exposed and contribute more to systemic risk in the global financial system than European banks. We find that banks become systemically relevant if they rely too strongly on non-interest income, less traditional lending and if the quality of their loan portfolio decreases. More stringent capital regulations and more independent supervisory agencies improve financial stability. As we match European and U.S. banks based on firm size and valuation, the differences we find in the banks’ systemic relevance cannot be explained by the too-big-to-fail or charter value hypotheses.