International Propagation of the Credit Crisis
51 Pages Posted: 21 Nov 2010 Last revised: 29 Mar 2012
There are 2 versions of this paper
International Propagation of the Credit Crisis
Date Written: April 30, 2011
Abstract
We use a large sample of non-US banks to examine the propagation of the 2007-2009 crisis. Using both stock market and structural variables we test whether the relative incidence of the crisis was better explained by crisis models or by the VaR-type analysis of the Basel system. Consistent with crisis models, we find that comovement, interbank linkages, leverage, and fragility of funding structure are related to crisis impact. Contrary to the assumptions of the Basel system, we find that asset risk, measured by the risk weightings of the Basel, has a perverse relationship with crisis impact when considered alone and no relationship when other variables are included. We provide evidence of both a direct linkage between banks and an indirect linkage which could either represent linkages in the real economy or common demands by investors for liquidity. We also investigate whether the relative impact of the crisis on banks was related to a shift in correlations and find that it was not. We discuss the implications of our findings for regulation.
Keywords: banking, financial institutions, capital structure, risk management, international finance, monetary economics, credit crisis, international transmission, contagion, financial regulation
JEL Classification: F33, F36, G1, G15, G18, G21, G28, G32, G34
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Cross-Country Causes and Consequences of the 2008 Crisis: Early Warning
By Andrew Kenan Rose and Mark M. Spiegel
-
Cross-Country Causes and Consequences of the 2008 Crisis: Early Warning
By Andrew Kenan Rose and Mark M. Spiegel
-
Cross-Country Causes and Consequences of the 2008 Crisis: Early Warning
By Andrew Kenan Rose and Mark M. Spiegel
-
By Andrew Kenan Rose and Mark M. Spiegel
-
By Andrew Kenan Rose and Mark M. Spiegel
-
How the Subprime Crisis Went Global: Evidence from Bank Credit Default Swap Spreads
By Barry Eichengreen, Ashoka Mody, ...
-
How the Subprime Crisis Went Global: Evidence from Bank Credit Default Swap Spreads
By Barry Eichengreen, Milan Nedeljkovic, ...