This paper provides a theory of diversification and financial structure of banks. It shows that by diversifying the bank portfolio and financing it with debt, the bank can commit to a higher level of monitoring. By linking the benefits of diversification to the costs, the paper derives an optimal size of the bank, which is bounded. The costs of diversification lie in the higher overload costs with which the banker is faced by monitoring more projects. The benefits of diversification lie in increasing the bank's owner's incentives to monitor the lenders

Cerasi, V., Daltung, S. (2000). The optimal size of a bank: Costs and benefits of diversification. EUROPEAN ECONOMIC REVIEW, 44(9), 1701-1726 [10.1016/S0014-2921(99)00008-2].

The optimal size of a bank: Costs and benefits of diversification

CERASI, VITTORIA;
2000

Abstract

This paper provides a theory of diversification and financial structure of banks. It shows that by diversifying the bank portfolio and financing it with debt, the bank can commit to a higher level of monitoring. By linking the benefits of diversification to the costs, the paper derives an optimal size of the bank, which is bounded. The costs of diversification lie in the higher overload costs with which the banker is faced by monitoring more projects. The benefits of diversification lie in increasing the bank's owner's incentives to monitor the lenders
Articolo in rivista - Articolo scientifico
financial intermediaries; financial structure; diversification; monitoring
English
2000
44
9
1701
1726
none
Cerasi, V., Daltung, S. (2000). The optimal size of a bank: Costs and benefits of diversification. EUROPEAN ECONOMIC REVIEW, 44(9), 1701-1726 [10.1016/S0014-2921(99)00008-2].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/277
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