Volatility Spillovers and Capital Buffers Among the G-Sibs

24 Pages Posted: 17 Apr 2020

See all articles by Paul D. McNelis

Paul D. McNelis

Fordham University - Gabelli School of Business

James Yetman

Bank for International Settlements (BIS)

Date Written: April 14, 2020

Abstract

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

Suggested Citation

McNelis, Paul D. and Yetman, James, Volatility Spillovers and Capital Buffers Among the G-Sibs (April 14, 2020). BIS Working Paper No. 856, Available at SSRN: https://ssrn.com/abstract=3576880

Paul D. McNelis (Contact Author)

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

James Yetman

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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