Assessing the Systemic Risk Between American and European Financial Systems

Ayhan Orhan, Vahit Ferhan Benli and Rui Alexandre Castanho

Prague Economic Papers, 2020, vol. 2020, issue 6, 649-671

Abstract: The present study focuses on the analysis of systemic risk in the American and European financial systems for the period from 20 August 2004 to 28 February 2014. The global crisis in 2007 has brought attention to the urgent need to understand the systemic risk issues and the stability of financial systems along with their actors. To assess systemic risk, Adrian and Brunnermeier (2011) advocated the use of conditional value-at-risk (CoVaR) methodology in integrating quantile regression. Instead of the value-at-risk (VaR), which is unable to detect systemic risk, we seek to use the CoVaR methodology to calculate the systemic risk levels of the United States and European markets. In the light of related findings, we conclude that the insurance sector contributes most to the systemic risk in the USA, while in the Eurozone, it is the financial services sector that is highly interconnected with systemic risk.

Keywords: Systemic risk; financial regulation and management; value-at-risk; CoVaR; quantile regression (search for similar items in EconPapers)
JEL-codes: E50 E51 G20 H12 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.18267/j.pep.756

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