Interconnectedness and Systemic Risk

Christopher L. Culp (), Andria van der Merwe () and Bettina J. Stärkle ()
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Christopher L. Culp: Johns Hopkins University
Andria van der Merwe: Johns Hopkins University
Bettina J. Stärkle: Compass Lexecon

Chapter Chapter 12 in Credit Default Swaps, 2018, pp 249-270 from Palgrave Macmillan

Abstract: Abstract The empirical literature regarding financial institution interconnectedness and potential systemic risk has burgeoned in the last decade. Broad conclusions from this research pertaining to credit default swaps (“CDSs”) include the following: (i) Single-name CDSs on corporate, banking, and sovereign reference entities are a source of interconnectedness and contain information that may be valuable to policy makers in measuring potential systemic risk, but there is a dearth of empirical evidence to indicate that single-name CDSs are systemically destabilizing; (ii) single-name sovereign CDSs are transmission mechanisms for economic shocks but not generally a cause of those shocks; and (iii) a “sovereign-bank” loop integrates the financial condition of the banking sector with sovereign credit risks.

Keywords: Credit default swap; CDS; Interconnectedness; Systemic risk; Sovereign CDSs; Sovereign-bank loop; European sovereign debt crisis; Credit crisis; Systemic risk (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:pal:psircp:978-3-319-93076-3_12

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DOI: 10.1007/978-3-319-93076-3_12

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