What Drives Systemic Bank Risk in Europe: the balance sheet effect

Michael Wosser
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Michael Wosser: Central Bank of Ireland

No 08/RT/17, Research Technical Papers from Central Bank of Ireland

Abstract: Since the 2008 global financial crisis (GFC) several systemic risk measures (SRMs) have gained traction in the literature. This paper examines whether Delta-CoVaR (?CoVaR) is relevant in the context of European banks and compares risk rankings against those found using marginal expected shortfall (MES). The analysis reveals that a cluster of large banks, operating in one particular country, is the principal contributor to financial system risk, if measured by ?CoVaR. When the direction of risk flow is reversed, i.e. from the system to the institution (via MES), a second cluster of banks, headquartered in a different jurisdiction, would be most affected by a large and systemic financial shock. The analysis reveals that future realisations of systemic risk is strongly associated with institution size, maturity mismatch, non-performing loans and non-interest-to-interest-income ratios. However, in certain cases, the relationship depends upon the systemic risk measure used. For example, forward bank leverage appears correlated with MES but not with ?CoVaR.

Keywords: Systemic banking crisis; Systemic risk measurement; ?CoVaR; MES; Bank Balance Sheet; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cba, nep-cfn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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