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From sovereigns to banks: evidence on cross-border contagion

Alesia Kalbaska and Cesario Mateus
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Alesia Kalbaska: University of Siena

Journal of Banking Regulation, 2019, vol. 20, issue 1, No 5, 86-103

Abstract: Abstract This paper analyses the evolution of the banking system sensitivity to cross-border contagion in 2006–2011. The study is performed on the basis of the BIS data on cross-border exposures and the Bankscope data on Tier 1 capital of 20 banking systems (Australia, Austria, Belgium, Canada, Finland, France, Germany, Greece, India, Ireland, Italy, Japan, the Netherlands, Portugal, Spain, Sweden, Switzerland, Turkey, the UK, and the USA). Since the European sovereign debt crisis took a decisive turn at the end of 2009, markets started looking at its main protagonists—Greece, Ireland, Italy, Portugal, and Spain (GIIPS)—with a lot of anxiety. However, unexpectedly, we find that a single failure among GIIPS could be absorbed by the network. Our results reveal that the USA, the UK, France, and Germany pose the highest threat to the systemic stability. Moreover, the resilience of the banking systems to contagion risks tends to improve over the years.

Keywords: Contagion; Systemic risk; Furfine algorithm; Stress testing; GIIPS (search for similar items in EconPapers)
JEL-codes: F34 F37 G01 G15 G21 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1057/s41261-018-0068-1

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