The Stability of the Australian Banking System

THE BANKING CRISIS HANDBOOK, G. Gregoriou, ed., pp. 397-416, Chapter 21, CRC Press, Chapman-Hall/Taylor and Francis

Posted: 4 Aug 2009 Last revised: 3 Feb 2010

See all articles by Philip A. Stork

Philip A. Stork

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Casper G. de Vries

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 4, 2009

Abstract

Australia’s insulated geographical location and its Four Pillar Policy have long sheltered its prosperous banking sector from external financial downturns. However, the 2007-2008 credit crisis uncovered its vulnerability to the most severe financial events. In this chapter we use Extreme Value Theory to examine the stability of the Australian banking system. We estimate the downside risks of the largest banks by calculating univariate extreme loss probabilities, which equal the inverse of the Value at Risk stress levels. The contagion risk within the banking sector is assessed by calculating multivariate co-crash probabilities. We find that spillover risk has increased markedly during the crisis.

Keywords: Australia, banking, contagion risk

JEL Classification: C14, G14, G21

Suggested Citation

Stork, Philip A. and De Vries, Casper, The Stability of the Australian Banking System (August 4, 2009). THE BANKING CRISIS HANDBOOK, G. Gregoriou, ed., pp. 397-416, Chapter 21, CRC Press, Chapman-Hall/Taylor and Francis, Available at SSRN: https://ssrn.com/abstract=1442861

Philip A. Stork (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Casper De Vries

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 8956 (Phone)
+31 10 408 9147 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
+31 10 408 8956 (Phone)
+31 10 408 9147 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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