We show that the diversification of risks at financial institutions has unwelcome effects by increasing the likelihood of systems crises.As a result, complete diversification is not warranted adn the optimal degree of diversification is arbitrarily low.We also identify externalities that cause...

This paper examines the implications of bank activity and short-term funding strategies for bank risk and return using an international sample of 1334 banks in 101 countries leading up to the 2007 financial crisis. Expansion into non-interest income generating activities such as trading...