Working Paper
Bank Diversification: Laws and Fallacies of Large Numbers
The conventional wisdom on bank diversification confuses risk with failure. This paper clarifies that distinction and shows how increasing bank size may increase bank risk even though it lessens the probability of failure and lowers the expected loss. The key result is an application of Samuelson’s "fallacy of large numbers."
Suggested Citation
Haubrich, Joseph G. 1994. “Bank Diversification: Laws and Fallacies of Large Numbers.” Federal Reserve Bank of Cleveland, Working Paper No. 94-17. https://doi.org/10.26509/frbc-wp-199417
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