Forward looking banking stress in EMU countries
Manish K. Singh (),
Marta Gómez-Puig () and
Simon Sosvilla-Rivero ()
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Manish K. Singh: Department of Economic Theory, Universitat de Barcelona
No 14-10, Working Papers from Asociación Española de Economía y Finanzas Internacionales
Based on contingent claims analysis(CCA), this paper tries to estimate the systemic risk build-up in the European Economic and Monetary Union (EMU) countries using a market based measure "distance-to-default"(DtD). It analyzes the individual and aggregated series for a comprehensive set of banks in each eurozone country over the period 2004-Q4 to 2013-Q2. Given the structural differences in financial sector and banking regulations at national level, the indices provide a useful indicator for monitoring country specific banking vulnerability and stress. We find that average DtD indicators are intuitive, forward-looking and timely risk indicators. The underlying trend, fluctuations and correlations among indices help us analyze the interdependence while cross-sectional differences in DtD prior to crisis suggest banking sector fragility in peripheral EMU countries.
Keywords: contingent claim analysis; distance-to-default; systemic risk (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Pages: 28 pages
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-rmg
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Working Paper: Forward Looking Banking Stress in EMU Countries (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:aee:wpaper:1410
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