Volatility Spillovers and Capital Buffers Among the G-Sibs
24 Pages Posted: 17 Apr 2020
Date Written: April 14, 2020
We assess the dynamics of volatility spillovers among global systemically important banks (G-SIBs). We measure spillovers using vector-autoregressive models of range volatility of the equity prices of G-SIBs, together with machine learning methods. We then compare the size of these spillovers with the degree of systemic importance measured by the Basel Committee on Banking Supervision's G-SIB bucket designations. We find a high positive correlation between the two. We also find that higher bank capital reduces volatility spillovers, especially for banks in higher G-SIB buckets. Our results suggest that requiring banks that are designated as being more systemically important globally to hold additional capital is likely to reduce volatility spillovers from them to other large banks.
Keywords: G-SIBs, contagion, connectedness, bank capital, cross validation
JEL Classification: C58, F65, G21, G28
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