Assessing systemic fragility: A probabilistic perspective

Deyan Radev

No 70, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We outline a procedure for consistent estimation of marginal and joint default risk in the euro area financial system. We interpret the latter risk as the intrinsic financial system fragility and derive several systemic fragility indicators for euro area banks and sovereigns, based on CDS prices. Our analysis documents that although the fragility of the euro area banking system had started to deteriorate before Lehman Brothers' file for bankruptcy, investors did not expect the crisis to affect euro area sovereigns' solvency until September 2008. Since then, and especially after November 2009, joint sovereign default risk has outpaced the rise of systemic risk within the banking system.

Keywords: Banking Stability; Financial Distress; Tail Risk; Contagion (search for similar items in EconPapers)
JEL-codes: C16 C61 G01 G21 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ban, nep-ore and nep-rmg
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:70

DOI: 10.2139/ssrn.2514279

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