This section asks empirically whether large ba
nks are riskier than small banks. We also ask,
more specifically, which characteristics of larg
e banks (size per se, lower capital, less-stable
funding, more market-based activi
ties, or higher complexity) are
associated with more risk.
To answer this question, we use the 2007–08 fina
ncial crisis as a “natural experiment” and
capture bank risk through bank perf
ormance during the financial crisis.