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Systemic Risk in the Dutch Financial Sector

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  • Koen Minderhoud
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    Abstract

    This paper investigates systemic risk in the Dutch financial sector by focusing on extreme returns of the major financial institutions. Our measure of systemic risk is the number of coincidences of extreme returns that cannot be explained by a linear model of constant correlation. By using a Monte Carlo simulation, we find strong evidence of correlation breakdown among the major Dutch financials. This indicates that systemic risk is significant, which has implications for effective prudential supervision. In addition, our results indicate that insurance activities of banks may increase systemic risk.

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    File URL: http://www.dnb.nl/binaries/serie2003-17_tcm46-147346.pdf
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    Bibliographic Info

    Paper provided by Netherlands Central Bank, Monetary and Economic Policy Department in its series MEB Series (discontinued) with number 2003-17.

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    Date of creation: Dec 2003
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    Handle: RePEc:dnb:mebser:2003-17

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    Related research

    Keywords: banks; correlation breakdown; extreme co-movements; financial institutions; insurance companies; extreme stock returns; systemic risk;

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