Open AccessON THE IMPORTANCE OF TRADITIONAL LENDING ACTIVITY FOR BANKING SYSTEMS STABILITY
Author(s) -
Stefano Zedda,
Michele Patanè,
Luana Miggiano
Publication year - 2020
Publication title -
journal of financial management markets and institutions
Language(s) - English
Resource type - Journals
ISSN - 2282-717X
DOI - 10.1142/s2282717x2050005x
Subject(s) - systemic risk , financial stability , stability (learning theory) , correlation , financial system , positive correlation , business , negative correlation , economics , computer science , financial crisis , medicine , mathematics , macroeconomics , machine learning , geometry
In this paper, we analyzed the role of banks’ traditional lending on systemic stability. Firstly, we quantified the effect 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.