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Measuring the Interdependence of Banks in Hong Kong

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Author Info

  • Tom Fong

    (Research Department, Hong Kong Monetary Authority)

  • Laurence Fung

    (Research Department, Hong Kong Monetary Authority)

  • Lillie Lam

    (Research Department, Hong Kong Monetary Authority)

  • Ip-wing Yu

    (Research Department, Hong Kong Monetary Authority)

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    Abstract

    This paper assesses systemic linkages among banks in Hong Kong using the risk measure "CoVaR" derived from quantile regression. The CoVaR measure captures the co-movements of banks¡¯ default risk by taking into account their nonlinear relationship when the banks are in distress. Based on equity price information, our estimation results show that the default risks of the banks were interdependent during the recent crisis. Although local banks are generally smaller, their systemic importance is found to be similar to their international and Mainland counterparts, which may be due to a higher degree of commonality in the risk profile of local banks. Regarding the impact of external shocks on the banks, international banks are more likely to be affected by the equity price fall in the US market, while local banks are relatively more responsive to funding liquidity risk.

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    File URL: http://www.hkma.gov.hk/media/eng/publication-and-research/research/working-papers/HKMAWP09_19_full.pdf
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    Bibliographic Info

    Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 0919.

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    Length: 16 pages
    Date of creation: Dec 2009
    Date of revision:
    Handle: RePEc:hkg:wpaper:0919

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    Related research

    Keywords: Value-at-Risk; Systemic Risk; Risk Spillovers; Quantile Regression;

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