Exploring the Systemic Risk of Domestic Banks with ΔCoVaR and Elastic-Net

Michele Leonardo Bianchi () and Alberto Maria Sorrentino ()
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Michele Leonardo Bianchi: Directorate General for Economics, Statistics and Research, Bank of Italy
Alberto Maria Sorrentino: Directorate General for Financial Supervision and Regulation, Bank of Italy

Journal of Financial Services Research, 2022, vol. 62, issue 1, No 5, 127-141

Abstract: Abstract We analyze the systemic risk of Italian banks with the ΔCoVaR from a bivariate normal GARCH model. The results show that it is a good measure of systemic risk and is applicable to the ranking of Italian other systemically important institutions. Using an elastic-net approach, we identify the balance sheet and market variables that explain the ΔCoVaR of Italian banks. The analysis confirms that these variables are key determinants of systemic importance and highlights how higher capitalization is beneficial to tackling systemic risk. And, we detect a connection between ΔCoVaR and some variables for trading and investment banking.

Keywords: Financial crisis; Capital regulation; Banking supervision; Internal risk models; Systemic risk; Value-at-risk (search for similar items in EconPapers)
JEL-codes: E58 G01 G18 G21 G28 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10693-021-00366-9

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