Asymmetric Covar: An Application to International Banking

35 Pages Posted: 2 Mar 2011

See all articles by Germán López-Espinosa

Germán López-Espinosa

University of Navarra

Antonio Moreno

School of Economics and Business, University of Navarra

Antonio Rubia Serrano

University of Alicante, Department of Financial Economics; University of California, Los Angeles (UCLA) - Finance Area

Laura Valderrama

International Monetary Fund - Monetary and Capital Markets Department

Date Written: March 1, 2011

Abstract

In this paper we measure the systemic risk in a set of large international banks. We first measure the contribution of a financial institution to international systemic risk. Importantly, we show the existence of an asymmetric non-linear contribution of banks to systemic risk depending on whether they experience negative or positive returns. In particular, we show that the more systemic a bank is, the more asymmetry it exhibits. Using the CoVaR methodology recently proposed by Adrian and Brunnermeier (2009), we show that the short-term debt to assets ratio (liquidity risk) is a key factor behind systemic risk. We find no evidence that a higher bank size increases systemic risk.

Keywords: Systemic risk, Global banking, CoVaR

JEL Classification: C30, G01, G20

Suggested Citation

López-Espinosa, Germán and Moreno, Antonio and Serrano, Antonio Rubia and Valderrama, Laura, Asymmetric Covar: An Application to International Banking (March 1, 2011). Systemic Risk, Basel III, Financial Stability and Regulation 2011. Available at SSRN: https://ssrn.com/abstract=1773902 or http://dx.doi.org/10.2139/ssrn.1773902

Germán López-Espinosa

University of Navarra ( email )

Facultad de Ciencias Económicas y Empresariales
Edificio Amigos
Pamplona, Navarra 31080
Spain
+34 948425600 (Phone)
+34 948425626 (Fax)

Antonio Moreno (Contact Author)

School of Economics and Business, University of Navarra ( email )

Ed. Amigos
Pamplona, Navarra 31009
Spain

Antonio Rubia Serrano

University of Alicante, Department of Financial Economics ( email )

Ctra. S. Vicente s/n
03690-S. Vicente del Raspeig
Alicante, San Vicente del Raspeig - Alicante 03690
Spain
(34) 965 903 621 (Phone)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
(310) 825-7246 (Phone)

Laura Valderrama

International Monetary Fund - Monetary and Capital Markets Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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