The systemic risk of European banks during the financial and sovereign debt crises

Lamont Black, Ricardo Correa, Xin Huang and Hao Zhou

Journal of Banking & Finance, 2016, vol. 63, issue C, 107-125

Abstract: European banks became a source of risk to global financial markets during the financial crisis and attention to the European banking sector increased during the sovereign debt crisis. To measure the systemic risk of European banks, we calculate a distress insurance premium (DIP), which integrates the characteristics of bank size, probability of default, and correlation. Based on this measure, the systemic risk of European banks reached its height in late 2011 around €500 billion. We find that this was largely due to sovereign default risk. The DIP methodology is also used to measure the systemic contribution of individual banks. This approach identifies the large systemically important European banks, but Italian and Spanish banks as a group notably increased in systemic importance during the sample period. Bank-specific fundamentals like capital-asset ratios predict the one-year-ahead systemic risk contributions.

Keywords: Banking systemic risk; European debt crisis; Too-big-to-fail; Leverage; Correlation; Credit default swap; Macroprudential regulation (search for similar items in EconPapers)
JEL-codes: G15 G21 G28 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (110)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426615002654
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The systemic risk of European banks during the financial and sovereign debt crises (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:63:y:2016:i:c:p:107-125

DOI: 10.1016/j.jbankfin.2015.09.007

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().