Tail Risks and Systemic Risks for U.S. and Eurozone Financial Institutions in the Wake of the Global Financial Crisis
56 Pages Posted: 28 Aug 2012
Date Written: August 24, 2012
Abstract
This paper proposes and evaluates several market-based measures for US and eurozone individual bank tail risk and banking system risk. We apply statistical extreme value analysis to the tails of bank equity prices to estimate the likelihood of individual institutions financial distress as well as individual banks exposure to each other (contagion risk) and to global shocks (extreme systematic risk). Moreover, the estimators presuppose that bank equity prices are heavy tailed and asymptotically dependent as identifying assumption. We also assess to what extent measures of tail risk and systemic risk have been altered by the global fi nancial crisis that erupted since 2007. Using both U.S. and euro area equity prices allows one to make a cross Atlantic comparison of the fi nancial systems' riskiness and financial stability. For Europe we assess the relative importance of cross-border bank spillovers as compared to domestic bank spillovers. The results suggest, inter alia, that both tail risk and systemic risk in the US are higher than in the euro area. One possible explanation of the latter outcome is that cross-border risks are still relatively mild in Europe. On both sides of the Atlantic tail risk and systemic risk have increased in the crisis period as compared to pre-crisis times.
Keywords: Banking, Systemic Risk, Asymptotic Dependence, Multivariate Extreme Value Theory
JEL Classification: G21, G28, G29, G12, C49
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
How Sovereign is Sovereign Credit Risk?
By Francis A. Longstaff, Jun Pan, ...
-
A Pyrrhic Victory? - Bank Bailouts and Sovereign Credit Risk
By Viral V. Acharya, Itamar Drechsler, ...
-
A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk
By Viral V. Acharya, Itamar Drechsler, ...
-
A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk
By Viral V. Acharya, Itamar Drechsler, ...
-
A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk
By Viral V. Acharya, Itamar Drechsler, ...
-
Globalization and Risk Sharing
By Fernando Broner and Jaume Ventura
-
Globalization and Risk Sharing
By Fernando Broner and Jaume Ventura
-
Globalization and Risk Sharing
By Fernando Broner and Jaume Ventura
-
Sovereign Risk and Secondary Markets
By Fernando Broner, Alberto Martin, ...
-
Sovereign Risk and Secondary Markets
By Fernando Broner, Alberto Martin, ...