Risk Exposures and Financial Spillovers in Tranquil and Crisis Times: Bank-Level Evidence

47 Pages Posted: 27 Jun 2013

See all articles by Hélène Poirson

Hélène Poirson

International Monetary Fund (IMF) - Research Department

Jochen Schmittmann

International Monetary Fund (IMF)

Date Written: June 2013

Abstract

For a sample of 83 financial institutions during 2003–2011, this paper attempts to answer three questions: first, what is the evolution of banks’ stock price exposure to country-level and global risk factors as approximated by equity indices; second, which bank-specific characteristics explain these risk exposures; third, are there clusters of banks with equity price linkages beyond market risk factors. The paper finds a rise in sensitivities to both country and global risk factors in 2011, although on average to levels still below those of the subprime crisis. The average sensitivity to European risk, specifically, has been steadily rising since 2008. Banks that are reliant on wholesale funding, have weaker capital levels and low valuations, and higher exposures to crisis countries are found to be the most vulnerable to shocks. The analysis of bank-to-bank linkages suggests that any “globalization” of the euro area crisis is likely to be channelled through U.K. and U.S. banks, with little evidence of direct spillover effects to other regions.

Keywords: Banks, Financial institutions, United States, United Kingdom, Germany, France, Europe, Financial risk, Stock prices, Spillovers, Financial crisis, Cross country analysis, Financial sector, financial institutions, banks, financial institutions, financial crisis, spillovers., stock market, stock returns, equity capital, world stock market, equity market, financial sector, financial system, equity markets, international banks, cash flow, financial markets, financial contagion, financial market, stock price, financial systems, financial services, derivative, international financial markets, government bonds, cash flow data, derivative markets, financial stock, stock prices, financial economics,

JEL Classification: G15, G21, F37

Suggested Citation

Poirson Ward, Helene and Schmittmann, Jochen, Risk Exposures and Financial Spillovers in Tranquil and Crisis Times: Bank-Level Evidence (June 2013). IMF Working Paper No. 13/142, Available at SSRN: https://ssrn.com/abstract=2285962

Helene Poirson Ward (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Jochen Schmittmann

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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