From me to you: Measuring connectedness between Eurozone financial institutions

Matteo Foglia and Eliana Angelini

Research in International Business and Finance, 2020, vol. 54, issue C

Abstract: This paper aims to analyse the tail risk spillover between banks, insurance companies and the shadow banking system in the Eurozone contest. These intra-sectoral interdependencies between financial market participants have contributed to the spread of instability in the financial system. Therefore mapping these links is important for policy-makers to provide supervisory tools and can be a key input into the design of macroprudential policies. For this purpose, we adopt the Tail-Event driven NETwork (TENET) risk model. The TENET is a useful method to map the tail interconnection between the three sectors and to provide systemic risk measures that take into account the “too big to fail” and “too big to interconnected” concepts. The results suggest that each financial sector has a significant impact on the other. By comparing the contribution of each sector, we show that banks are the largest emitters of risk. However, also shadow banking firms are systemic important, given their high level of connection. The work provides a clear view of risk spillovers and interconnection dynamics during the crisis providing a meaningful ranking of the systemic important financial institutions.

Keywords: Interconnected; Systemic risk; Shadow banking; Tail risk; Financial network (search for similar items in EconPapers)
JEL-codes: C31 G01 G20 G28 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:54:y:2020:i:c:s0275531919301886

DOI: 10.1016/j.ribaf.2020.101238

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