We study empirically the effect of focus (specialization) vs. diversification on the return and the risk of banks using …) focus and diversification using a unique data set that is able to identify individual bank loan exposures to different … bank return while endogenously producing riskier loans for all banks in our sample (this effect being most powerful for …

correlationamong banks’ investments (Acharya 2009; Acharya andYorulmazer 2007, 2008); the large size of some banks (O’Haraand Shaw 1990 …),1 which leads to “fire-sale”–related pecuniaryexternalities; and bank interconnectedness (Allen and Gale2000; Kahn and Santos …