Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/257929 
Year of Publication: 
2019
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 7 [Issue:] 3 [Article No.:] 91 [Publisher:] MDPI [Place:] Basel [Year:] 2019 [Pages:] 1-18
Publisher: 
MDPI, Basel
Abstract: 
This paper provides a critical analysis of the subadditivity axiom, which is the key condition for coherent risk measures. Contrary to the subadditivity assumption, bank mergers can create extra risk. We begin with an analysis how a merger affects depositors, junior or senior bank creditors, and bank owners. Next it is shown that bank mergers can result in higher payouts having to be made by the deposit insurance scheme. Finally, we demonstrate that if banks are interconnected via interbank loans, a bank merger could lead to additional contagion risks. We conclude that the subadditivity assumption should be rejected, since a subadditive risk measure, by definition, cannot account for such increased risks.
Subjects: 
bank mergers
coherent risk measures
regulatory capital
subadditivity
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
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