Measuring Contagion Risk in International Banking

40 Pages Posted: 12 Aug 2019

See all articles by Stefan Avdjiev

Stefan Avdjiev

Bank for International Settlements (BIS)

Paolo Giudici

University of Pavia

Alessandro Spelta

University of Pavia - Department of Economics and Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 15, 2019

Abstract

We propose a distress measure for national banking systems that incorporates not only banks' CDS spreads, but also how they interact with the rest of the global financial system via multiple linkage types. The measure is based on a tensor decomposition method that extracts an adjacency matrix from a multi-layer network, measured using banks' foreign exposures obtained from the BIS international banking statistics. Based on this adjacency matrix, we develop a new network centrality measure that can be interpreted in terms of a banking system's credit risk or funding risk.

Keywords: international banking, contagion risk, multi-layer networks, tensor decompositions

JEL Classification: G01, C58, C63

Suggested Citation

Avdjiev, Stefan and Giudici, Paolo and Spelta, Alessandro, Measuring Contagion Risk in International Banking (July 15, 2019). BIS Working Paper No. 796, Available at SSRN: https://ssrn.com/abstract=3420344

Stefan Avdjiev (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Paolo Giudici

University of Pavia ( email )

Via San Felice 7
27100 Pavia, 27100
Italy

Alessandro Spelta

University of Pavia - Department of Economics and Management ( email )

Strada Nuova, 65
Pavia, 27100
Italy

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