Breaking up banks could increase instability, research finds

Banking systems with small numbers of large banks are more stable and less likely to undergo crises, according to World Bank and NBER economists.

The assumption that large banks are a cause of systemic risk might not be justified, according to research due to be published soon by three economists from the World Bank and the US National Bureau of Economic Research (NBER).

Thorsten Beck and Asli Demirgüç-Kunt of the World Bank and Ross Levine of the NBER looked at banks from 47 countries over the 1980–1997 period. They found that more concentrated banking systems – those made up of a small number of large banks – were less likely to undergo