Interconnectedness of Global Systemically-Important Banks and Insurers

Sheheryar Malik and TengTeng Xu

No 2017/210, IMF Working Papers from International Monetary Fund

Abstract: Interconnectedness among global systemically important banks (GSIBs) and global systemically important insurers (GSIIs) has important financial stability implications. This paper examines connectedness among United States, European and Asian GSIBs and GSIIs, using publicly-available daily equity returns and intra-day volatility data from October 2007 to August 2016. Results reveal strong regional clusters of return and volatility connectedness amongst GSIBs and GSIIs. Compared to Asia, selected GSIBs and GSIIs headquartered in the United States and Europe appear to be main sources of market-based connectedness. Total system connectedness—i.e., among all GSIBs and GSIIs—tends to rise during financial stress, which is corroborated by a balance sheet oriented systemic risk measure. Lastly, the paper demonstrates significant influence of economic policy uncertainty and U.S. long-term interest rates on total connectedness among systemically important institutions, and the important role of bank profitability and asset quality in driving bank-specific return connectedness.

Keywords: WP; economic policy; balance sheet; Global systemically important banks and insurers; connectedness; volatility; equity prices; vector autoregression; return connectedness; GSIBs from the United States; system of GSIBs; bank characteristic; equity return; bank subsidiary; BNP Paribas; book value; profitable GSIBs; dynamic return connectedness; connectedness in the system; return connectedness of United States; Global systemically important banks; Global systemically important insurers; Stocks; Insurance companies; Global; Europe; Asia and Pacific (search for similar items in EconPapers)
Pages: 57
Date: 2017-09-29
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Citations: View citations in EconPapers (9)

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