On the Risk-Based Contagion of G7 Banking System and the COVID-19 Pandemic

13 Pages Posted: 18 Mar 2021

See all articles by Paulo Rogério Matos

Paulo Rogério Matos

Federal University of Ceara

Antonio Costa

Federal University of Ceara

Cristiano da Silva

Universidade do Estado do Rio Grande do Norte (UERN)

Date Written: March 15, 2021

Abstract

We revisit the discussion on banking system contagion by proposing a risk-based empirical analysis during the current pandemic period. We use daily returns on G7 banking sector indices from January 01, 2015 to December 31, 2019 (pre-pandemic), and from January 01, 2020 to October 16, 2020 (pandemic). Based on the dissimilarities, the pandemic has intensified banking contagion. Frequency-based Granger causality is useful to tell the history of the pass-through of this health crisis across G7 banking sectors. We highlight the increase in the predictive relevance of Italian banking cycles in during the pandemic. VaR ratio analysis, considering 21 possible pairwise combinations with the G7 financial indices, suggests a stronger contagion between banking systems. The greatest contagion is evident in the Italian and French banking systems, countries severely punished by deaths by COVID-19, while we find less contagion between Japan and Germany, countries least affected by the first wave of COVID-19.

Keywords: Absolute risk measures, Wavelet dissimilarities, Frequency-based Granger causality, Value at risk ratio

JEL Classification: F44, G15, C6

Suggested Citation

Matos, Paulo Rogério and Costa, Antonio and da Silva, Cristiano, On the Risk-Based Contagion of G7 Banking System and the COVID-19 Pandemic (March 15, 2021). Available at SSRN: https://ssrn.com/abstract=3805120 or http://dx.doi.org/10.2139/ssrn.3805120

Paulo Rogério Matos

Federal University of Ceara ( email )

Rua Papi Júnior 1225 - Rodolfo Teófilo
Fortaleza, Ceara 60431970
Portugal

Antonio Costa (Contact Author)

Federal University of Ceara ( email )

Rua Papi Júnior 1225 - Rodolfo Teófilo
Fortaleza, Ceara 60431970
Portugal

Cristiano Da Silva

Universidade do Estado do Rio Grande do Norte (UERN) ( email )

Assu - State of Rio Grande do Norte
Mossoró, 59610-210
Brazil

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