Extreme Spillover Between Shadow Banking and Regular Banking
AbstractThe current financial crisis brought light to a large banking sector that existed for decades within the “darkness” of the financial system - the shadow banking sector. Shadow bank assets are widely traded in the financial markets and shadow banking activities are intertwined with the daily business of regular banks. This unregulated banking sector has become systematically important. Its failure affected the entire banking system. We present a model based on multivariate extreme value theory, which allows us to measure crashes and liquidity squeezes. Using the stable tail dependence structure, we measure the interdependency between the tail probabilities of the regular banking sector and the shadow banking sector. This allows us to calculate the conditional spillover likelihood between asset returns and liquidity spreads for selected crash levels. The empirical results indicate a fairly strong contagion probability between shadow bank assets and regular bank assets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of St. Gallen, School of Finance in its series Working Papers on Finance with number 1312.
Length: 30 pages
Date of creation: Jul 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-05 (All new papers)
- NEP-BAN-2013-10-05 (Banking)
- NEP-CBA-2013-10-05 (Central Banking)
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.:
- Nicola Gennaioli, 2012.
"A Model of Shadow Banking,"
2012 Meeting Papers
89, Society for Economic Dynamics.
- Nicola Gennaioli & Andrei Shleifer & Robert W. Vishny, 2011. "A Model of Shadow Banking," NBER Working Papers 17115, National Bureau of Economic Research, Inc.
- Nicola Gennaioli & Andrei Shleifer & Robert Vishny, 2011. "A model of shadow banking," Economics Working Papers 1283, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2012.
- Nicola Gennaioli & Andrei Shleifer & Robert W. Vishny, . "A Model of Shadow Banking," Working Paper 19521, Harvard University OpenScholar.
- Nicola Gennaioli & Andrei Shleifer & Robert Vishny, 2011. "A Model of Shadow Banking," Working Papers 576, Barcelona Graduate School of Economics.
- Daniel Covitz & Nellie Liang & Gustavo A. Suarez, 2013. "The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market," Journal of Finance, American Finance Association, vol. 68(3), pages 815-848, 06.
- Viral V. Acharya & Philipp Schnabl & Gustavo Suarez, 2010.
"Securitization without risk transfer,"
NBER Working Papers
15730, National Bureau of Economic Research, Inc.
- William Cheung & Scott Fung & Shih-Chuan Tsai, 2010. "Global capital market interdependence and spillover effect of credit risk: evidence from the 2007-2009 global financial crisis," Applied Financial Economics, Taylor & Francis Journals, vol. 20(1-2), pages 85-103.
- Longstaff, Francis A., 2010. "The subprime credit crisis and contagion in financial markets," Journal of Financial Economics, Elsevier, vol. 97(3), pages 436-450, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Geraldine Frei).
If references are entirely missing, you can add them using this form.