Contagion Risk in the Australian Banking and Property Sectors

Journal of Banking and Finance, Vol. 3, No. 3, pp.691-697, 2011

22nd Australasian Finance and Banking Conference 2009

41 Pages Posted: 25 Aug 2009 Last revised: 11 Feb 2011

See all articles by Philip A. Stork

Philip A. Stork

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Amelia Pais

Massey University - Department of Commerce

Date Written: March 4, 2010

Abstract

The Australian banking system has emerged from the global crisis virtually unhurt, with most banks still profitable, adequately capitalized, and with AA credit ratings. Are there any risks or vulnerabilities in this success story? This paper looks at systemic banking risk or contagion risk in Australia and attempts to determine if this risk has increased with the recent global crisis as well as whether the risk is related to the downturn experienced in the real estate market. We employ Extreme Value Theory to measure univariate Value at Risk, as well as multivariate intra-sector and inter-sector contagion risks. Of the 13 sectors analyzed, we find that the property sector exhibits the highest level of extremal dependence with the banking sector. Further, the credit crisis has significantly increased the probability of a bank or property firm crashing. Moreover, contagion risks have increased significantly not only within the banking and property sectors, but also between them.

Keywords: Contagion Risk, Extreme Value Theory, Banks, Australia

JEL Classification: C14, G01, G15, G21

Suggested Citation

Stork, Philip A. and Pais, Amelia, Contagion Risk in the Australian Banking and Property Sectors (March 4, 2010). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1461144

Philip A. Stork

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

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Amelia Pais (Contact Author)

Massey University - Department of Commerce ( email )

Private Bag 102-904
Auckland
New Zealand

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