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Bank-Insurance Risk Spillovers: Evidence from Europe

Alberto Dreassi (), Stefano Miani (), Andrea Paltrinieri () and Alex Sclip ()
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Alberto Dreassi: University of Trieste
Stefano Miani: University of Udine
Andrea Paltrinieri: University of Udine
Alex Sclip: University of Udine

The Geneva Papers on Risk and Insurance - Issues and Practice, 2018, vol. 43, issue 1, No 4, 72-96

Abstract: Abstract We investigate cross-sector financial contagion over the period 2006–2014 for a sample of large European banks and insurers. We use CDS spreads and define contagion as correlation over and above what is explained by fundamental factors. Moreover, we assess the impact of different business models on contagion and the channels through which it spreads. We find that, for insurers, size and investment income raise contagion, while for banks capital adequacy, funding and income diversification are the most relevant factors. Furthermore, leverage is crucial in both sectors. We also provide evidence of the main risk transmission channels: the asset-holding and the guarantee channel for insurers and the additional collateral channel for banks. Our results offer new insight on how credit risk spillovers spread across sectors and call for further regulatory and supervisory effort in understanding if and where cross-industry similarities increase contagion risks.

Keywords: contagion; systemic risk; CDS spread; insurance companies (search for similar items in EconPapers)
JEL-codes: G01 G21 G22 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1057/s41288-017-0049-0

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Handle: RePEc:pal:gpprii:v:43:y:2018:i:1:d:10.1057_s41288-017-0049-0