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Banking system stability - a cross-Atlantic perspective

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Author Info
Philipp Hartmann () (European Central Bank, DG-Research, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)
Stefan Straetmans () (Limburg Institute of Financial Economics (LIFE), Economics Faculty, Maastricht University, P.O. Box 616, 6200 MD Maastricht, The Netherlands)
Casper de Vries () (Faculty of Economics, Erasmus University Rotterdam, P.O. Box 1738, 3000 DR Rotterdam,The Netherlands)

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Abstract

This paper derives indicators of the severity and structure of banking system risk from asymptotic interdependencies between banks’ equity prices. We use new tools available from multivariate extreme value theory to estimate individual banks’ exposure to each other (“contagion risk”) and to systematic risk. By applying structural break tests to those measures we study whether capital markets indicate changes in the importance of systemic risk over time. Using data for the United States and the euro area, we can also compare banking system stability between the two largest economies in the world. For Europe we assess the relative importance of cross-border bank spillovers as compared to domestic bank spillovers. The results suggest, inter alia, that systemic risk in the US is higher than in the euro area, mainly as cross-border risks are still relatively mild in Europe. On both sides of the Atlantic systemic risk has increased during the 1990s.

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Publisher Info
Paper provided by European Central Bank in its series Working Paper Series with number 527.

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Length: 93 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:ecb:ecbwps:20050527

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Related research
Keywords: Banking; Systemic Risk; Asymptotic Dependence; Multivariate Extreme Value Theory; Structural Change Tests.;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
G29 - Financial Economics - - Financial Institutions and Services - - - Other
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other

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References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Joel F. Houston & Kevin J. Stiroh, 2006. "Three decades of financial sector risk," Staff Reports 248, Federal Reserve Bank of New York. [Downloadable!]
  2. Gianni De Nicoló & Alexander F. Tieman, 2007. "Economic Integration and Financial Stability: A European Perspective," IMF Working Papers 06/296, International Monetary Fund. [Downloadable!]
  3. Michal Brzoza-Brzezina, 2005. "Lending Booms in Europe’s Periphery: South-Western Lessons for Central-Eastern Members," Macroeconomics 0502002, EconWPA. [Downloadable!]
  4. Torben G. Andersen & Tim Bollerslev & Peter F. Christoffersen & Francis X. Diebold, 2005. "Practical Volatility and Correlation Modeling for Financial Market Risk Management," CFS Working Paper Series 2005/02, Center for Financial Studies. [Downloadable!]
    Other versions:
  5. Reinhart, Carmen & Felton, Andrew, 2008. "The First Global Financial Crisis of the 21st Century," MPRA Paper 11862, University Library of Munich, Germany. [Downloadable!]
  6. S. T. M. Straetmans & W. F. C. Verschoor & C. C. P. Wolff, 2008. "Extreme US stock market fluctuations in the wake of 9|11," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(1), pages 17-42. [Downloadable!]
  7. Michal Brzoza-Brzezina, 2005. "Lending booms in the new EU Member States - will euro adoption matter?," Working Paper Series 543, European Central Bank. [Downloadable!]
  8. Fecht, Falko & Grüner, Hans Peter & Hartmann, Philipp, 2008. "Financial integration, specialization and systemic risk," Discussion Paper Series 1: Economic Studies 2008,23, Deutsche Bundesbank, Research Centre. [Downloadable!]
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