Essays in Banking and Systemic Risk

This dissertation is a collection of three papers on banking and systemic risk. The first chapter develops a multi-objective optimization framework for banks’ securities portfolios, considering both individual and systemic risk. The findings show that while diversification can reduce individual risk, including systemic risk in the objective function leads to more concentrated portfolio allocations. The second chapter empirically investigates the sovereign-bank nexus in the Euro Area from a market perspective, showing that the introduction of the ECB’s list of Significant Institutions reduced heterogeneity in long-term market sensitivity of banks to sovereign risk between large and small banks. The third chapter examines the role of geographic deposit diversification in the US banking system, finding that more geographically diversified banks experience more stable deposit growth in response to interest rate changes, highlighting trade-offs between market power and diversification benefits.