Bank Complexity and Risk

The consolidation of banks into banking groups and holdings has been a prominent recent trend in Russia’s banking sector. To evaluate the effect of consolidation on the risk of a banking group, one needs a specific metric that captures organisational, business, and geographic complexity. In this paper, I consider different complexity types and proxies, and examine how complexity affects the risk of a banking group. Using data for 76 banking groups in Russia for 2015–2019, I find that for most of the complexity indicators there is a positive relationship between the organisational and business complexity on the one hand, and the risk of a banking group on the other hand. I also show that, in combination, different types of complexity have a positive effect on risk.