Systemic interconnectedness among Asian Banks

Jones Odei-Mensah () and Gamini Premaratne ()

Japan and the World Economy, 2017, vol. 41, issue C, 17-33

Abstract: The recent global financial crisis (GFC) has drawn much attention to systemic risk, particularly its measurement and key contributing institutions. Following this severe event, the economic and finance literature has been flooded with numerous quantitative measures of systemic risk. However, researchers have largely ignored the systemic risk potential of regions such as Asia, instead focusing on financial systems in the U.S. and Europe. This paper empirically examines systemic risk potential for banking institutions in Asia, drawing on recent systemic risk analytics. This paper employs two methods, using the Conditional Value-at-Risk method to measure the systemic contribution of institutions and the Granger-causality network approach to determine their degree of interconnectedness. The analysis reveals that the degree of interconnectedness has generally increased among banks in Asia. Nevertheless, the causal network among the banks has become less dense since the GFC (2007–2009). Thus, banks in developed Asian economies generally have higher potential for systemic risk than those in other emerging markets. Finally, we find a positive relationship between bank size and contribution to systemic risk.

Keywords: Systemic risk; Asia banking sector; CoVaR; Granger causality network; Interconnectedness; Dynamic causality index (search for similar items in EconPapers)
JEL-codes: C5 G01 G20 G21 G32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:41:y:2017:i:c:p:17-33

DOI: 10.1016/j.japwor.2016.12.004

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