Banking system stability - a cross-Atlantic perspective

Philipp Hartmann, Stefan Straetmans () and Casper G. de Vries ()
Additional contact information
Stefan Straetmans: Limburg Institute of Financial Economics (LIFE), Economics Faculty, Maastricht University, P.O. Box 616, 6200 MD Maastricht, The Netherlands, http://www.fdewb.unimaas.nl/finance/faculty/straetmans/

No 527, Working Paper Series from European Central Bank

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. 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. 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.

Keywords: Banking; Systemic Risk; Asymptotic Dependence; Multivariate Extreme Value Theory; Structural Change Tests. (search for similar items in EconPapers)
JEL-codes: G21 G28 G29 G12 C49 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-fin and nep-fmk
Date: 2005-09
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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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Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20050527

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