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The sources of contagion risk in a banking sector with foreign ownership

Tomas Fiala and Tomas Havranek ()

Economic Modelling, 2017, vol. 60, issue C, 108-121

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 parent bank and its local subsidiary. During and after the global financial crisis, the second source of risk has been stressed by local regulators. Using a nonparametric method based on extreme value theory, we analyze interdependencies in downward risk in the banking sectors of the Czech Republic, Poland, Slovakia, and Turkey during 1994–2013. We find that the risk of contagion from a foreign parent bank to its local subsidiary is substantially smaller than the risk between two local banks.

Keywords: Systemic risk; Extreme value theory; Financial stability; Central and Eastern Europe; Banking; Parent–subsidiary relationship (search for similar items in EconPapers)
JEL-codes: F23 F36 G01 G21 (search for similar items in EconPapers)
Date: 2017
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