Ailing Mothers, Healthy Daughters? Contagion in the Central European Banking Sector

Tomas Fiala () and Tomas Havranek
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Tomas Fiala: Tilburg University and Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic

No 2014/10, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: Foreign-dominated banking sectors, such as those prevalent in Central and Eastern Europe, are susceptible to two major sources of systemic risk: (i) linkages between local banks, and (ii) linkages between a foreign par- ent bank and its local subsidiary. Using a nonparametric method based on extreme value theory, which accounts for fat-tail shocks, we analyze interde- pendencies in downward risk in the banking sectors of the Czech Republic, Hungary, Poland, and Slovakia during 1994–2013. In contrast to the pre- sumptions of the current regulatory policy of these countries, we find that the risk of contagion from a foreign parent bank to its local subsidiary is substantially smaller than the risk between two local banks.

Keywords: systemic risk; extreme value theory; financial stability; Central Eastern Europe; banking; parent-subsidiary relationship (search for similar items in EconPapers)
JEL-codes: F23 F36 G01 G21 (search for similar items in EconPapers)
Pages: 30pages
Date: 2014-04, Revised 2014-04
New Economics Papers: this item is included in nep-ban, nep-rmg and nep-tra
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Citations: View citations in EconPapers (2)

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Working Paper: Ailing Mothers, Healthy Daughters? Contagion in the Central European Banking Sector (2014)
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