Evolution in Bank Complexity

The authors present an analytical framework for bank complexity through the hypothesis that complexity is necessary for banks to stay viable in the evolving industry of financial intermediation. They look at organizational structures of bank holding companies gauged by the number and types of subsidiaries. Using comprehensive data on U.S. financial acquisitions over the past thirty years, the authors track consolidation and diversification that led to a significant expansion in bank complexity. They find that banks (and even nonbank financial firms) have gradually expanded into nontraditional banking through acquisitions of already‐formed subsidiaries. They also find that bank holding companies expanded by adding banks to their firm in the early 1990s. Their results are consistent with this move toward a model of finance oriented toward securitization