Cross-border bank contagion in Europe

Jukka Vesala, Reint Gropp and Marco Lo Duca

No 662, Working Paper Series from European Central Bank

Abstract: This paper analyses cross-border contagion in a sample of European banks from January 1994 to January 2003. We use a multinomial logit model to estimate the number of banks in a given country that experience a large shock on the same day ("coexceedances") as a function of variables measuring common shocks and lagged coexceedances in other countries. Large shocks are measured by the bottom 95th percentile of the distribution of the daily percentage change in the distance to default of the bank. We find evidence in favour of significant cross-border contagion. We also find some evidence that since the introduction of the euro cross-border contagion may have increased. The results seem to be very robust to changes in the specification. JEL Classification: G21, F36, G15

Keywords: banking; contagion; Distance to default; Multinomial logit model (search for similar items in EconPapers)
Date: 2006-07
Note: 56868
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Related works:
Journal Article: Cross-Border Bank Contagion in Europe (2009)
Working Paper: Cross-Border Bank Contagion in Europe (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2006662

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