A forthcoming study of bank performance from the Federal Reserve Bank of Minneapolis has found that bigness is a better indicator than location of an institution's susceptibility to distress or collapse.

Sifting for patterns in bank failures between 1983 and 1991, authors John H. Boyd and Mark Gertler report that banks with more than $1 billion of assets were more likely to succumb than their smaller countersparts in the same region.

The reason: Bigger banks took more risk because of implicit guarantees from regulators that uninsured depositors would be protected.

Thought |Too Big to Fail'

Big bank misadventures - fostered by the unwritten government policy of protecting banks deemed "too big to fail" - cost the banking system about $45 billion of extra chargeoffs in the period studied, the authors assert.

Mr. Boyd is a senior research officer at the Minneapolis Fed, and Mr. Gertler is an economics professors at New York University.

Their study raises fresh questions about protection of banks deemed too big to fail because of their extensive linkages to the financial system. Such treatment "indiscriminately subsidized risk-taking by large banks," which in turn led to most of the industry's woes in recent years, the authors assert.

$45 Billion of Chargeoffs

Financial institutions having at least $1 billion of assets far exceeded smaller rivals in their reliance on wholesale funds, concentrations of risky assets, capital deficiencies, and chargeoffs, according to the forth-coming paper.

These banks would have avoided $45 billion of chargeoffs had they met the performance standards of banks having between $250 million and $1 billion of assets, the study found.

However, Mr. Boyd and Mr. Gertler noted that the dangers of the "too big to fail" policy have been lessened by international capital standards introduced in the 1988 Basel accord, and by the 1991 U.S. banking reform law.

Looking forward, Mr. Boyd and Mr. Gertler advocate interstate branching as a way to lower the risk profile of big banks, saying it will promote product as well as geographic diversification and facilitate low-risk lending to small businesses.

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