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Contagion risk for Australian banks from global systemically important banks: Evidence from extreme events

Selim Akhter and Kevin Daly

Economic Modelling, 2017, vol. 63, issue C, 191-205

Abstract: This paper presents evidence that extreme negative shocks for the global systemically important banks (GSIBs) are contagious to Australian banks. Our logit regression models predict transmission of adverse extreme shocks in the distance to default (DD) of GSIBs to the Australian banks. While most previous studies consider contagion across national stock markets, we investigate the degree of contagion risk for Australian banks spreading from GSIBs. Our results point to the critical importance for the Australian Prudential Regulation Authority (APRA) (2015) to closely observe and monitor developments across the major GSIBs and direct appropriate local policy measures accordingly.

Keywords: Global systemically important banks (GSIBs); Australian banks; Extreme value theory (EVT); Extreme events; Distance to default (DD); GARCH; Logistic regression model (search for similar items in EconPapers)
JEL-codes: G21 G21 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:ecmode:v:63:y:2017:i:c:p:191-205