Measuring Tail-Risk Cross-Country Exposures in the Banking Industry

In this paper we analyze the state-dependent risk-spillover in different economic areas. To this end, weapply the quantile regression-based methodology developed in Adams, Füss and Gropp (2014)approach to examine the spillover in conditional tails of daily returns of indices of the banking industryin the US, BRICs, Peripheral EMU, Core EMU, Scandinavia, the UK and Emerging Markets. Thismethodology allows us to characterize size, direction and strength of financial contagion in a networkof bilateral exposures to address cross-border vulnerabilities under different states of the economy. Thegeneral evidence shows as the spillover effects are higher and more significant in volatile periods thanin tranquil ones. There is evidence of tail spillovers of which much is attributable to a spillover from theUS on the rest of the analyzed regions, especially on European countries. In sharp contrast, the USbanking system shows more financial resilience against foreign shocks.