Corporate Complexity and Systemic Risk

Abstract

This chapter updates and extends our earlier work on the corporate complexity of Global Systemically Important Banks (G-SIBs). The first edition of this chapter, which appeared in the Oxford Handbook of Banking, first edition, was based on data in 2007, documented a notable degree of complexity among most G-SIBs, and warned complexity could pose insuperable obstacles if an institution needed to be resolved, an issue then largely neglected. The Lehman Brothers bankruptcy highlighted these issues, stimulating ambitious initiatives to rationalize the corporate structure of G-SIBs and enhance their resolvability. The second edition, based on data through May 2013, found only mixed evidence of progress in reducing corporate complexity, and noted that some institutions had grown still larger and more complex. In the current edition, published a decade after the crisis, our measures of corporate complexity remain high. Apart from some improvements in the US disclosures, the corporate structures of G-SIBs remain quite opaque. If regulators are to achieve their goal of bolstering confidence in resolution procedures and enhancing market discipline, transparency must be enhanced.