Credit risk interconnectedness: What does the market really know?
Christian Brownlees (),
Christina Hans and
No 09/2016, Discussion Papers from Deutsche Bundesbank
We analyze the relation between market-based credit risk interconnectedness among banks during the crisis and the associated balance sheet linkages via funding and securities holdings. For identification, we use a proprietary dataset that has the funding positions of banks at the bank-to-bank level for 2006-13 in conjunction with investments of banks at the security level and the credit register from Germany. We find asymmetries both cross-sectionally and over time: when banks face difficulties to raise funding, the interbank lending affects market-based bank interconnectedness. Moreover, banks with investments in securities related to troubled classes have a higher credit risk interconnectedness. Overall, our results suggest that market-based measures of interdependence can serve well as risk monitoring tools in the absence of disaggregated high-frequency bank fundamental data.
Keywords: Credit Risk; Networks; CDS; Interbank Lending; Portfolio Distance (search for similar items in EconPapers)
JEL-codes: C33 C53 E44 F36 G12 G14 G18 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-mac and nep-rmg
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Journal Article: Credit risk interconnectedness: What does the market really know? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:092016
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