Systemic Risk in Europe

Review of Finance (2015) 19(1), 145-190

55 Pages Posted: 22 Dec 2012 Last revised: 9 Feb 2016

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute

Michael Rockinger

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Date Written: February 1, 2014

Abstract

Systemic risk may be defined as the propensity of a financial institution to be undercapitalized when the financial system as a whole is undercapitalized. In this paper, we investigate the case of non-U.S. institutions, with several factors explaining the dynamics of financial firms returns and with asynchronicity of time zones. We apply this methodology to the 196 largest European financial firms and estimate their systemic risk over the 2000-2012 period. We find that, for certain countries, the cost for the taxpayer to rescue the riskiest domestic banks is so high that some banks might be considered too big to be saved.

Keywords: Systemic Risk, Marginal Expected Shortfall, Multi-factor Model

JEL Classification: C32, G01,G20, G28, G32

Suggested Citation

Engle, Robert F. and Jondeau, Eric and Rockinger, Michael, Systemic Risk in Europe (February 1, 2014). Review of Finance (2015) 19(1), 145-190. Available at SSRN: https://ssrn.com/abstract=2192536 or http://dx.doi.org/10.2139/ssrn.2192536

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Eric Jondeau (Contact Author)

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://www.hec.unil.ch/ejondeau/

Swiss Finance Institute ( email )

40, Boulevard du Pont-d'Arve
40, Bd du Pont-d'Arve
1211 Geneva 4, CH-6900
Switzerland
+41 21 692 33 49 (Phone)

Georg Michael Rockinger

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
+41 21 728 3348 (Phone)
+41+21 692 3435 (Fax)

HOME PAGE: http://www.hec.unil.ch/mrockinger

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Swiss Finance Institute

40, Boulevard du Pont-d'Arve
40, Bd du Pont-d'Arve
1211 Geneva 4, CH-6900
Switzerland

Paper statistics

Downloads
1,692
Rank
7,270
Abstract Views
6,155