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Forward Looking Banking Stress in EMU Countries

Manish K. Singh (), Marta Gómez-Puig () and Simon Sosvilla-Rivero ()
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Manish K. Singh: Faculty of Economics, University of Barcelona

No 201421, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: 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 di_erences in _nancial sector and banking regulations at national level, the indices provide a useful indicator for monitoring country speci_c banking vulnerability and stress. We _nd that average DtD indicators are intuitive, forward-looking and timely risk indicators. The underlying trend, uctuations and correlations among indices help us analyze the interdependence while cross-sectional di_erences in DtD prior to crisis suggest banking sector fragility in peripheral EMU countries.

Keywords: contingent claim analysis; distance-to-default; systemic risk JEL classification: G01; G21; G28 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2014-10, Revised 2014-10
New Economics Papers: this item is included in nep-ban, nep-eec and nep-rmg
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