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IMF: No Optimal Bank Size Means Implications For Regulators 

May 16, 2014
Karen Mracek, MNI

--Regulations Restricting Outright Size 'May Be Imprecise, Difficult To Implement'

--Suggested Regulations Include Macro- and Micro-Prudential Rules

Large banks create most of the systemic financial risk, but also offer customers benefits by taking advantage of economies of scale, which means there is no optimal size for banks, and that has implications for regulators trying to reduce systematic risks, according to a new research paper released by the International Monetary Fund Wednesday.

"'Optimal' bank size is highly uncertain, and regulations that restrict outright bank size may be imprecise and difficult to implement," said research by IMF economists Luc Laeven, Lev Ratnovski and Hui Tong.

The size of banks is "at least in part driven by too-big-to-fail subsidies and empire-building incentives," it said, suggesting "today's large banks might be too large from a social welfare perspective."

Read more: MNI

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