Cross-border bank contagion in Europe

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Cross-border bank contagion in Europe

Author Info

Reint Gropp () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Marco Lo Duca () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Jukka Vesala () (Financial Supervision Authority of Finland (Fin-FSA), Snellmaninkatu 6, P.O. Box 159, FIN-00101 Helsinki, Finland.)

Additional information is available for the following registered author(s):

Reint Eberhard Gropp

Abstract

This paper analyses cross-border contagion in a sample of European banks from January 1994 to January 2003. We use a multinomial logit model to estimate the number of banks in a given country that experience a large shock on the same day (“coexceedances”) as a function of variables measuring common shocks and lagged coexceedances in other countries. Large shocks are measured by the bottom 95th percentile of the distribution of the daily percentage change in the distance to default of the bank. We find evidence in favour of significant cross-border contagion. We also find some evidence that since the introduction of the euro cross-border contagion may have increased. The results seem to be very robust to changes in the specification. JEL Classification: G21, F36, G15.

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Paper provided by European Central Bank in its series Working Paper Series with number 662.

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Length: 55 pages
Date of creation: Jul 2006
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Handle: RePEc:ecb:ecbwps:20060662

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Paper
- Reint Gropp & Marco Lo Duca & Jukka Vesala, 2007. "Cross-Border Bank Contagion in Europe," Working Paper Series: Finance and Accounting 175, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-07-28 (All new papers)
NEP-BAN-2006-07-28 (Banking)
NEP-DCM-2006-07-28 (Discrete Choice Models)
NEP-EEC-2006-07-28 (European Economics)
NEP-FIN-2006-07-28 (Finance)
NEP-FMK-2006-07-28 (Financial Markets)

References listed on IDEAS
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.:

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Other versions:
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Other versions:
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Other versions:
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Other versions:
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Other versions:
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Other versions:
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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.)

Fabio Moneta & Rasmus Rüffer, 2006. "Business cycle synchronisation in East Asia," Working Paper Series 671, European Central Bank. [Downloadable!]
Annette Kamps, 2006. "The euro as invoicing currency in international trade," Working Paper Series 665, European Central Bank. [Downloadable!]
Patrick McGuire & Nikola Tarashev, 2007. "International banking with the euro," BIS Quarterly Review, Bank for International Settlements, December. [Downloadable!]
Bernd Schnatz, 2006. "Is reversion to PPP in euro exchange rates non-linear?," Working Paper Series 682, European Central Bank. [Downloadable!]
Other versions:
- Bernd Schnatz, 2007. "Is reversion to PPP in euro exchange rates non-linear?," International Economics and Economic Policy, Springer, vol. 4(3), pages 281-297, November. [Downloadable!] (restricted)
Li L. Ong & Srobona Mitra & Jorge A. Chan-Lau, 2007. "Contagion Risk in the International Banking System and Implications for London as a Global Financial Center," IMF Working Papers 07/74, International Monetary Fund. [Downloadable!]

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