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

Tomas Fiala () and Tomas Havranek

No wp1069, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

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 mother bank and its local subsidiary. Using a nonparametric method based on extreme value theory, which accounts for fat-tail shocks, we analyze inter- dependencies in downward risk in the banking sector 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 mother 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: pages
Date: 2014-01-01
New Economics Papers: this item is included in nep-ban, nep-rmg and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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