On the importance of traditional lending activity for banking systems stability

ZEDDA, STEFANO

Primo

;PATANÉ, MICHELE;MIGGIANO, LUANA

2020-01-01

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Abstract

In this paper, we analyzed the role of banks' traditional lending on systemic stability. Firstly, we quantified the e®ect of correlation among banks' results on systemic risk through Monte Carlo simulation. Secondly, we verified how traditional lending affects banks' results correlation. Finally, combining the two effects, we assessed the importance of bank traditional lending on financial stability. Our results suggest that banks devoting a higher share of their assets to traditional lending show a lower correlation of their comprehensive income, thus having a mitigation effect on systemic stability.