The Conflict between Systemic Risk and Idiosyncratic Risk

We highlight the role revenue portfolio diversification plays in determining idiosyncratic and systemic risk in a global sample of large banks. We find that increased bank revenue diversification reduces idiosyncratic risk but increases systemic risk, while also demonstrating that increased bank equity will not necessarily reduce idiosyncratic risk. Bank size and market concentration have a role in the relationship between bank revenue portfolio composition and systemic risk. We argue that the current stance of the global regulatory architecture may not necessarily be effective in reducing bank systemic risk in the future.