Measuring the Interdependence of Banks in Hong Kong

Tom Fong (), Laurence Fung, Lillie Lam and Ip-wing Yu
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Laurence Fung: Research Department, Hong Kong Monetary Authority
Lillie Lam: Research Department, Hong Kong Monetary Authority
Ip-wing Yu: Research Department, Hong Kong Monetary Authority

No 919, Working Papers from Hong Kong Monetary Authority

Abstract: This paper assesses systemic linkages among banks in Hong Kong using the risk measure "CoVaR" derived from quantile regression. The CoVaR measure captures the co-movements of banks¡¯ default risk by taking into account their nonlinear relationship when the banks are in distress. Based on equity price information, our estimation results show that the default risks of the banks were interdependent during the recent crisis. Although local banks are generally smaller, their systemic importance is found to be similar to their international and Mainland counterparts, which may be due to a higher degree of commonality in the risk profile of local banks. Regarding the impact of external shocks on the banks, international banks are more likely to be affected by the equity price fall in the US market, while local banks are relatively more responsive to funding liquidity risk.

Keywords: Value-at-Risk; Systemic Risk; Risk Spillovers; Quantile Regression (search for similar items in EconPapers)
JEL-codes: G14 G21 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2009-12
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:hkg:wpaper:0919

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