Systemic Risk: Is the Banking Sector Special?

39 Pages Posted: 24 May 2010

See all articles by Wolfgang Bühler

Wolfgang Bühler

University of Mannheim - Department of Business Administration and Finance; University of New South Wales, Australian Business School; Financial Research Network (FIRN)

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Date Written: February 5, 2010

Abstract

In this paper, we empirically investigate the degree of systemic risk in the U.S. banking sector versus other industry sectors. We characterize the systemic risk in each sector by the lower tail dependence of stock returns. Our study differs from extant literature in three respects. First, we compare the degree of systemic risk in the banking sector with other sectors in the economy. Second, we analyze how systemic risk depends on the state of the stock market and the economy. Third, we compare the systemic risk in the commercial and the investment banking sectors and also investigate the systemic risk during the recent financial crisis. Our study shows that the systemic risk in the banking sector is significantly larger than in all other sectors of the economy. In particular, it differs from the systemic risk in the insurance sector, the second most strongly regulated financial subsystem. Moreover, the degree of systemic risk for the banking sector is higher under adverse market conditions. Finally, we document a substantial increase of systemic risk during the financial crisis.

Keywords: G21, G15, G28, G11

JEL Classification: Systemic Risk, Financial Crisis, Empirical Study

Suggested Citation

Bühler, Wolfgang and Prokopczuk, Marcel, Systemic Risk: Is the Banking Sector Special? (February 5, 2010). Available at SSRN: https://ssrn.com/abstract=1612683 or http://dx.doi.org/10.2139/ssrn.1612683

Wolfgang Bühler

University of Mannheim - Department of Business Administration and Finance ( email )

D-68131 Mannheim
Germany
+49620368609 (Phone)
+49 6203660729 (Fax)

University of New South Wales, Australian Business School ( email )

Australian Business School
Sydney
Australia
+61-2-9385-54900 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Marcel Prokopczuk (Contact Author)

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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