Forward Looking Banking Stress in EMU Countries

30 Pages Posted: 25 Sep 2014

See all articles by Manish Singh

Manish Singh

University of Barcelona; Indira Gandhi Institute of Development Research (IGIDR)

Marta Gómez-Puig

Economic Theory Department. University of Barcelona

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

Date Written: July 2, 2014

Abstract

Based on contingent claims analysis (CCA), this paper tries to estimate the systemic risk build-up in the European Economic and Monetary Union (EMU) countries using a market based measure "distance-to-default" (DtD). It analyzes the individual and aggregated series for a comprehensive set of banks in each eurozone country over the period 2004-Q4 to 2013-Q2. Given the structural differences in financial sector and banking regulations at national level, the indices provide a useful indicator for monitoring country specific banking vulnerability and stress. We find that average DtD indicators are intuitive, forward-looking and timely risk indicators. The underlying trend, fluctuations and correlations among indices help us analyze the interdependence while cross-sectional differences in DtD prior to crisis suggest banking sector fragility in peripheral EMU countries.

Keywords: contingent claim analysis, distance-to-default, systemic risk.

JEL Classification: G01, G21, G28.

Suggested Citation

Singh, Manish and Gómez-Puig, Marta and Sosvilla-Rivero, Simon, Forward Looking Banking Stress in EMU Countries (July 2, 2014). Available at SSRN: https://ssrn.com/abstract=2500711 or http://dx.doi.org/10.2139/ssrn.2500711

Manish Singh

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Mumbai, Maharashtra 400065
India

Marta Gómez-Puig

Economic Theory Department. University of Barcelona ( email )

Diagonal 690
Barcelona, 08034
Spain
34-93-4020113 (Phone)
34-93-4039082 (Fax)

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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