Banking System Stability: A Cross-Atlantic Perspective

Philipp Hartmann, Stefan Straetmans and Casper de Vries

No 11698, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper derives indicators of the severity and structure of banking system risk from asymptotic interdependencies between banks' equity prices. We use new tools available from multivariate extreme value theory to estimate individual banks' exposure to each other ("contagion risk") and to systematic risk. Moreover, by applying structural break tests to those measures we study whether capital markets indicate changes in the importance of systemic risk over time. Using data for the United States and the euro area, we can also compare banking system stability between the two largest economies in the world. Finally, for Europe we assess the relative importance of cross-border bank spillovers as compared to domestic bank spillovers. The results suggest, inter alia, that systemic risk in the US is higher than in the euro area, mainly as cross-border risks are still relatively mild in Europe. On both sides of the Atlantic systemic risk has increased during the 1990s.

JEL-codes: C49 G12 G28 G29 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-eec and nep-fin
Note: AP
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Citations: View citations in EconPapers (66)

Published as Banking System Stability. A Cross-Atlantic Perspective , Philipp Hartmann, Stefan Straetmans, Casper de Vries. in The Risks of Financial Institutions , Carey and Stulz. 2006

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Related works:
Chapter: Banking System Stability. A Cross-Atlantic Perspective (2007)
Working Paper: Banking system stability: a cross-Atlantic perspective (2005)
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