Systemic risk attribution in the EU

G. Farina, R. Giacometti and M. E. De Giuli

Journal of the Operational Research Society, 2019, vol. 70, issue 7, 1115-1128

Abstract: Systemic default risk is due to multiple private and/or public entities’ simultaneous default. This risk has caused great concern in the recent past and its assessment is not a trivial subject. We have provided a model for systemic risk attribution in order to disentangle its different components. We have applied it to a selection of EU countries consistent with previous research. We have extracted a common EU factor and analysed the residual components related to an individual country’s banking system, to the interaction between banking system and government, and to the country’s and banking idiosyncratic components, as well.For this purpose, we have introduced a multivariate distribution for all the countries and the relative banks, also providing an integrated analysis. We have applied the multivariate Marshall–Olkin distribution, where the marginal probability of default for any country or bank depends on its default intensity. Risk attribution has been performed using weekly market data referred to sovereign and bank CDSs over the period 2009–2015. Our results have highlighted relevant differences between Northern and Southern EU countries, as far as risk decomposition is concerned. In Southern countries, risk is mainly concentrated in a country-banking system shock at each level. In Northern countries, the prevailing components of risk are the systemic EU shock at country level, and the idiosyncratic component at banking system level and individual bank level.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1080/01605682.2018.1487823 (text/html)
Access to full text is restricted to subscribers.

Related works:
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:taf:tjorxx:v:70:y:2019:i:7:p:1115-1128

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/tjor20

DOI: 10.1080/01605682.2018.1487823

Access Statistics for this article

Journal of the Operational Research Society is currently edited by Tom Archibald

More articles in Journal of the Operational Research Society from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().