Is bank default risk systematic?
AbstractWe evaluate the impact of commonly used indicators of bank distress on broad (i.e. sector and country) risks. This issue deserves special attention in the banking industry where there is a strong degree of interconnectedness among institutions and the default of a single bank may cause a cascading failure, which could potentially bankrupt the entire system. Using several measures of individual bank risk our results show that these measures have a direct impact on European banking (i.e. systemic) stock market risk. We also provide strong evidence suggesting that, for listed banks, default risk tends to be systematic (i.e. non-diversifiable).
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 37 (2013)
Issue (Month): 6 ()
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Web page: http://www.elsevier.com/locate/jbf
Systematic risk; Default risk; Banking;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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- Fiordelisi, Franco & Meles, Antonio & Monferrà, Stefano & Starita, Maria Grazia, 2013. "Personal vs. Corporate Goals: Why do Insurance Companies Manage Loss Reserves?," MPRA Paper 47867, University Library of Munich, Germany.
- Leonardo Gambacorta & Adrian Van Rixtel, 2013. "Structural bank regulation initiatives: approaches and implications," BIS Working Papers 412, Bank for International Settlements.
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