This paper contributes to
the debate on the optimal size
and scope of banks. It shows that
large banks, on average, create more individual
and systemic risk th
an smaller banks. The
risks of large banks ar
e especially high when they have
insufficient capital, unstable funding,
engage more in market-based activities, or ar
e organizationally complex. This, taken together
with the evidence from the litera
ture that the size of banks is
at least in part driven by too-
big-to-fail subsidies and empire
-building incentives, suggests th
at today’s large banks might
be too large from a soci
al welfare perspective.